Terreno Realty Corporation — Q2 2020 Form 10-Q
Business and period: Terreno owns and operates industrial real estate in six coastal U.S. markets and reports as a REIT. This filing covers the quarter and six months ended June 30, 2020. At quarter-end, the portfolio comprised 218 buildings totaling approximately 13.1 million square feet, 22 improved land parcels, and two properties under redevelopment. Buildings were 96.0% leased; land parcels were 98.5% leased.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $45.7 million | $41.7 million | $90.9 million | $82.6 million |
| Net income | $30.7 million | $10.4 million | $43.6 million | $25.9 million |
| Diluted earnings per share | $0.45 | $0.16 | $0.64 | $0.41 |
| FFO per diluted share | $0.36 | $0.33 | $0.71 | $0.67 |
| Net cash from operations | — | $45.4 million | $43.9 million |
- Revenue and operating trends: Q2 revenue rose 9.6%; same-store NOI increased 1.6% to $29.2 million, while cash-basis same-store NOI rose 4.2% to $28.1 million. For the first half, same-store NOI increased 1.4% and cash-basis same-store NOI increased 4.7%. New and renewed rents were 38.2% higher for approximately 0.5 million square feet commencing in Q2, and 28.9% higher for approximately 1.1 million square feet in the first half.
- Earnings quality: Q2 net income included a $17.8 million gain on property sales; the first-half gain was also $17.8 million, versus $4.5 million in the prior-year period. FFO, which excludes property-sale gains, grew more modestly than GAAP earnings.
- Cash flow and investment: First-half investing cash flow was positive $5.5 million, reflecting $49.7 million of net sale proceeds and $15.9 million of senior secured loan repayments, partly offset by $40.4 million of acquisitions and $19.7 million of capital improvements. Financing cash outflow was $14.9 million, including $36.5 million of dividends and $32.8 million of mortgage repayments, partly offset by $54.7 million of net stock issuance proceeds.
- Debt and liquidity: June 30 cash and cash equivalents were $148.3 million. Debt was $461.5 million gross, or $459.0 million net of financing costs; the revolving facility had no borrowings against its $250 million capacity. Debt-to-market capitalization was 11.3%, debt-to-adjusted EBITDA 3.7x, and interest coverage 7.7x, using company-defined measures. The company reported compliance with debt covenants. Debt maturities include an $11.5 million mortgage in April 2021 and $150 million in 2022.
- Margins and balance sheet: Q2 NOI was $33.8 million, approximately 73.9% of revenue. Total assets were $2.14 billion and total stockholders’ equity was $1.59 billion at June 30. A conventional liquidity ratio is not provided in the filing.
Material changes versus prior period
- Q2 revenue increased $4.0 million, primarily from acquisitions and higher rents, partly offset by lower occupancy. Same-store occupancy was 96.5%, down from 97.7% a year earlier.
- First-half acquisitions totaled approximately $41.1 million, versus $119.4 million in the first half of 2019. Three Washington, D.C.-area property sales generated $51.3 million of proceeds and a $17.8 million gain; first-half 2019 included one sale with a $4.5 million gain.
- General and administrative expense fell 16.2% in Q2 and 10.2% for the first half, mainly reflecting lower performance-share expense. Shares outstanding increased to 68.3 million from 67.3 million at year-end 2019, including ATM issuances.
- Dividends were $0.27 per share for each of the first two 2020 quarters. After quarter-end, the board declared $0.29 per share for payment in October 2020.
Outlook, risks and unusual items
- No numerical earnings or FFO guidance was provided. Management said leasing activity had slowed amid COVID-19 restrictions and that acquisition and disposition markets were slower as participants sought price discovery. Acquisition activity will depend on opportunities, pricing, and the stock price relative to net asset value.
- As of August 4, 2020, Terreno had collected 95% of July rent in cash and applied security deposits for another 1%. Of 174 tenant requests for rent deferral or abatement, 61 tenants received deferrals representing 2.7% of annualized base rent; no abatements were granted. Requests remained subject to change, and additional deferrals could be agreed.
- The company reversed $0.9 million of straight-line rent receivables in the first half because future contractual payments from certain tenants were not considered probable. COVID-19 risks include tenant defaults or bankruptcy, lower occupancy and leasing, delayed redevelopment, and reduced access to capital.
- Two redevelopment projects were expected to produce approximately 454,000 square feet, at total investment of about $97.0 million; approximately $89.8 million had been spent by June 30. Estimated completion dates were Q4 2020 and Q3 2021; estimated stabilized cap rates are management estimates, not guaranteed outcomes.
- Subsequent events included a July 9 lease termination and replacement lease at the Belleville property, with a $3.3 million termination fee and a $3.4 million deferred-rent write-off; a July 10 acquisition for $6.3 million; and a July 23 Miami property sale for $22.2 million. One additional land acquisition contract was outstanding as of August 4, subject to conditions.
- Interest-rate exposure includes $100 million of variable-rate term debt, of which $50 million was covered by an interest-rate cap at June 30. The filing also identifies potential LIBOR discontinuation and broader market and tenant risks. No property impairment charges or material litigation were reported; disclosure controls were deemed effective.
Investor facts to verify
- Subsequent rent collections, tenant deferrals, delinquencies and any further rent-receivable adjustments.
- Occupancy, lease renewals and rent spreads, especially the 2020–2022 expirations and the Northern New Jersey/New York market concentration.
- Recurring operating performance excluding property-sale gains, including FFO and same-store cash NOI.
- Redevelopment spending, leasing progress, completion timing and realized yields versus estimates.
- Debt refinancing and interest-rate exposure ahead of the 2021 and 2022 maturities, and dividend coverage alongside continued equity issuance.