Terreno Realty Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. Terreno owns and operates industrial properties in six coastal U.S. markets and reported 48 buildings totaling approximately 3.5 million square feet, 92.9% leased.
Financial performance and position
- Revenue: $6.61 million, up 96.0% from $3.37 million in Q1 2011. Rental revenue rose 105.4% to $5.31 million; tenant reimbursements increased 65.2% to $1.30 million.
- Profit and operating measures: GAAP net loss attributable to common stockholders narrowed to $267,000 from $1.31 million; loss per share was $0.02 versus $0.14. FFO was $1.53 million, or $0.12 per share, versus an FFO loss of $370,000. NOI increased 146.4% to $4.70 million; same-store NOI rose 30.6% to $2.51 million. NOI was approximately 71% of revenue, compared with 57% in the prior-year quarter.
- Cash flow: Operating activities provided $736,000, compared with $454,000 used in Q1 2011. Investing activities used $9.27 million; financing activities provided $22.06 million. Cash and cash equivalents ended the quarter at $16.78 million, up from $3.25 million at year-end.
- Debt and liquidity: Total debt was approximately $68.1 million, including unamortized mortgage premiums, versus $99.3 million at December 31, 2011. Debt included $10.05 million on a term loan and $58.02 million in mortgages; the $80 million revolving facility had no borrowings outstanding. Debt-to-investments was 24.9%, debt-to-market capitalization 26.2%, and floating-rate debt 14.8% of total debt. Adjusted EBITDA was $3.39 million and reported interest coverage was 3.3x.
- Dividends and equity: The declared quarterly dividend was $0.10 per share, unchanged year over year. On May 4, the board authorized a $0.12-per-share dividend payable in July. The January–February follow-on offering raised approximately $54.7 million net; shares outstanding increased to 13.41 million from 9.31 million at year-end.
Changes versus Q1 2011
- Revenue growth reflected acquisitions made in 2011–2012 and improved same-store performance. Same-store quarter-end occupancy increased to 92.0% from 68.8%.
- Same-store NOI benefited from higher occupancy and lower same-store property expenses, including reduced snow removal costs. Companywide NOI also grew with acquired properties.
- Depreciation and amortization increased 90.3% to $1.83 million, acquisition costs increased 153.2% to $714,000, and interest expense rose 175.0% to $1.01 million, primarily reflecting property acquisitions and debt financing.
- Net loss improved despite these higher costs, while operating cash flow turned positive. However, operating cash flow for the quarter did not cover the dividend.
Outlook, risks and unusual items
- Management provided no specific earnings or revenue guidance. Its stated financing objectives include keeping debt and preferred equity below 40% of enterprise value, fixed-charge coverage above 2.0x, and floating-rate debt below 20% of consolidated debt.
- The revolving facility was amended to extend maturity to January 2015, with a conditional one-year extension option. Its borrowing limit is the lesser of $80 million and 60% of borrowing-base property value; the facility may be increased to $150 million subject to lender approval. Terreno reported compliance with financial covenants.
- A $20.1 million non-recourse mortgage loan was issued at a fixed 3.79% rate, maturing in 2019; proceeds partly repaid the term loan. The remaining $10.05 million term loan matures in February 2013, with a conditional six-month extension option.
- As of May 7, the company had contracts to acquire three properties for a total stated purchase price of $75.16 million, including a $68.5 million Los Angeles portfolio. These transactions remained subject to due diligence and closing conditions; one also required mortgage-lender consent.
- Risks include tenant and market concentration, lease renewals and vacancies, acquisition execution and financing access, interest-rate changes, property valuation, and REIT qualification. Northern New Jersey/New York represented 44.9% of annualized base rent; ten tenants represented 56.7% of quarterly rental revenue. A 0.25% LIBOR change was estimated to affect annual interest expense by about $25,000 on quarter-end variable-rate debt.
- Approximately $700,000 of Q1 rental revenue reflected straight-line recognition of contractual rent abatements. No impairment charges were recorded. Management reported effective disclosure controls, no material litigation, and no material change in previously disclosed risk factors.
Key facts for investors to verify
- Whether the contracted acquisitions closed, at what final cost, and how they were financed.
- Whether occupancy and same-store NOI gains continued, and how straight-line rents and lease abatements compare with cash rent collections.
- How Terreno will address the February 2013 term-loan maturity and maintain covenant and liquidity headroom.
- Whether operating cash flow grows enough to support dividends and planned property investment without repeated equity issuance or increased borrowing.
- Tenant and geographic concentration, near-term lease expirations, and the performance of the proposed acquisitions.