Terreno Realty Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Terreno is a REIT focused on industrial properties in six major coastal U.S. markets. At quarter-end it owned 228 buildings totaling approximately 13.7 million square feet, 25 improved land parcels and two properties under redevelopment.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenues | $50.7 million | $45.1 million | +12.4% |
| Net income | $16.3 million | $12.9 million | +26.5% |
| Net income per diluted share | $0.24 | $0.19 | +$0.05 |
| Funds from operations (FFO) | $27.5 million; $0.40 per diluted share | $23.8 million; $0.35 per diluted share | +15.8%; +14.3% per share |
| Net operating income (NOI) | $37.2 million | $33.2 million | +12.0% |
| Cash-basis same-store NOI | $32.6 million | $30.4 million | +7.3% |
| Net cash from operating activities | $26.2 million | $22.2 million | +$4.0 million |
NOI was approximately 73.3% of revenue, compared with 73.6% a year earlier. Net income margin increased to approximately 32.1% from 28.5%. These ratios are calculated from reported figures.
Liquidity, debt and cash flows
- Cash and cash equivalents were $29.4 million at March 31, down from $107.2 million at December 31, 2020; cash plus restricted cash was $30.4 million.
- Gross debt was $450 million ($448.0 million net of deferred financing costs). Debt included a $100 million term loan and $350 million of senior unsecured notes. The $250 million revolving facility had no borrowings outstanding.
- The company repaid an $11.3 million mortgage during the quarter. Debt maturities include $150 million in 2022, comprising the $100 million term loan and $50 million of notes. The revolving facility also matures in October 2022.
- Weighted average debt interest rate was 3.3%; the term loan rate was 1.3%. Debt-to-total market capitalization was 9.8%, debt-to-Adjusted EBITDA was 3.3x, and interest and fixed-charge coverage were 8.2x and 8.1x, respectively.
- Operating cash flow was more than offset by $112.4 million of investing outflows, mainly property acquisitions. Financing provided $8.8 million, including $40.5 million net ATM equity proceeds, offset principally by dividends and mortgage repayment. The resulting decrease in cash and restricted cash was $77.4 million.
Material changes and operating performance
- Revenue rose $5.6 million, reflecting acquisitions and stronger new and renewed leases. Same-store NOI increased 10.0%; cash-basis same-store NOI increased 7.3% (7.0% excluding termination fees).
- Cash rents on approximately 0.3 million square feet of new and renewed leases commencing in the quarter were 16.0% above prior rents. Tenant retention was 82.3%. Management expects average rents on 2021 expirations to exceed current rents, but cautions that outcomes are not assured.
- Buildings were 96.1% leased and improved land was 97.9% leased. The portfolio’s largest tenant represented 5.3% of annualized base rent; Northern New Jersey/New York City represented 28.3%.
- Four properties totaling approximately 529,000 square feet were acquired for approximately $110.1 million. Two redevelopment projects were expected to require total investment of $71.6 million; approximately $65.9 million had been spent at quarter-end.
- The company issued 706,524 shares through its ATM program at a weighted average $58.20 per share, generating approximately $40.5 million net proceeds. Approximately $43.0 million remained available under the $300 million program.
Outlook, risks and notable items
- No quantified earnings or FFO guidance is provided. Management described expected rent increases on 2021 expirations and anticipates funding near- and long-term needs with operating cash, cash balances, debt and equity issuance, and potentially property dispositions.
- As of May 4, the company had contracts to acquire six properties for approximately $93.9 million, subject to due diligence and closing conditions. After quarter-end it acquired three properties for a combined approximately $23.8 million.
- The board declared a $0.29-per-share dividend payable July 14, 2021. The company’s stated long-term objectives include debt below 35% of enterprise value, fixed-charge coverage above 2.0x and debt-to-Adjusted EBITDA below 6.0x; these are objectives, not forecasts.
- Risks include ongoing COVID-19 effects on tenants and the economy, tenant defaults or vacancies, acquisition and redevelopment execution, capital-market access, interest-rate exposure and LIBOR transition, real estate valuation and impairment, and REIT qualification. The company reported no property impairment charges, material litigation, or material change in risk factors from its 2020 Form 10-K. It was in compliance with debt covenants.
- A $50 million interest-rate cap covering part of the variable-rate term loan expired May 4, 2021. Management estimates a 0.25% LIBOR movement would change annual interest expense by approximately $0.3 million on facility borrowings at quarter-end.
- COVID-related uncertainty affected rent estimates: approximately $0.1 million of straight-line rent receivables was reversed in Q1 2021, versus $0.5 million in Q1 2020. No material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether leasing momentum and 16.0% rent spreads persist, including renewals and re-leasing of upcoming expirations.
- Collection trends, tenant credit quality and COVID-related concessions or rent-receivable reversals.
- Execution, occupancy and returns on recent acquisitions and redevelopment projects, including the contracted purchases.
- Liquidity and refinancing plans for the $150 million of 2022 debt maturities and the revolving facility maturity.
- Interest-rate exposure after the interest-rate cap expired, and the transition from LIBOR to a replacement benchmark.
- Reconciliation of reported GAAP results with FFO, NOI and Adjusted EBITDA, which are non-GAAP measures and may not be comparable across companies.