Terreno Realty Corporation — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Terreno acquires and operates industrial properties in six coastal U.S. markets and had operated since February 2010. The 2010 comparisons cover a shorter period from commencement of operations, so they are not directly equivalent.
Business context and portfolio
At quarter-end, Terreno owned 41 buildings totaling approximately 3.0 million square feet, leased to 56 tenants. Portfolio occupancy was 74.0%, with a weighted-average remaining lease term of 4.7 years. Northern New Jersey/New York represented 54.4% of annualized base rent; Miami occupancy was 16.2%.
Financial performance and position
| Metric | Q3 2011 | Nine months 2011 |
|---|---|---|
| Revenue | $4.777 million | $11.913 million |
| Net loss available to common stockholders | $0.268 million; $0.03 per share | $3.535 million; $0.39 per share |
| FFO, a non-GAAP measure | $1.069 million; $0.12 per share | $(0.229) million; $(0.03) per share |
| Operating cash flow | Not separately presented for the quarter | $0.546 million |
Q3 property operating expenses were $1.681 million, depreciation and amortization $1.377 million, and interest expense $0.795 million. The filing does not report a standard operating margin. Nine-month Adjusted EBITDA, a non-GAAP measure, was $4.147 million; interest coverage was 2.5x.
At September 30, total assets were $227.098 million, cash and cash equivalents $6.729 million, restricted cash $2.507 million, and total debt including net premiums $59.632 million. Debt-to-investments was 27.1%, debt-to-market capitalization 33.3%, and floating-rate debt was 35.7% of total debt. Weighted-average debt interest rate was 4.7%; weighted-average maturity was 4.5 years. Debt maturities include $22.245 million in 2013, including the credit facility balance. The company reported compliance with debt covenants.
Cash declined by $50.524 million from year-end 2010. Nine-month investing cash use was $62.519 million, primarily for property acquisitions; financing cash provided was $11.449 million. Terreno paid $1.860 million of dividends in the period and declared $0.10 per share for each of the first three quarters.
Changes and developments
- Q3 revenue rose from $0.642 million in Q3 2010, principally because of acquisitions. Net loss narrowed from $2.704 million to $0.268 million; management cited lower acquisition costs and reduced general and administrative expense as contributors.
- For the nine months, revenue was $11.913 million versus $0.987 million for the shorter 2010 comparison period. Net loss narrowed from $4.792 million to $3.535 million. These results primarily reflect portfolio growth and differing operating periods.
- Terreno acquired eight buildings totaling about 647,886 square feet for approximately $78.6 million during the first nine months, including two Q3 buildings totaling 112,808 square feet. It entered a $10.1 million secured term loan in August.
- After quarter-end, Terreno acquired a 150,500-square-foot property for approximately $10.4 million, funded with cash and credit-facility borrowings.
Outlook, risks and contingencies
No specific earnings, occupancy, acquisition, or dividend guidance was provided. Management said it expected operating cash flow, cash balances, and available credit to support near-term needs, and intended to finance future investment with loans, mortgages, and credit-facility borrowings. Longer-term funding may include debt and equity issuance. These plans depend on financing and capital-market access.
Key risks include the limited operating history, acquisition and leasing execution, tenant defaults or non-renewals, vacancies and rent levels, interest rates, debt refinancing, property values, REIT qualification, and environmental or uninsured losses. Revenue concentration is notable: the five largest tenants accounted for 51.8% of annualized base rent, and Northern New Jersey/New York accounted for 54.4%. Management reported no material litigation or known material environmental exposures; it cautioned that environmental assessments may not identify all liabilities. No material changes to previously disclosed risk factors were reported. Disclosure controls were judged effective, with no material change in internal control reported during the quarter.
Most important facts for investors to verify
- Whether occupancy, particularly in Miami and Washington, D.C./Baltimore, improves and supports rental income.
- Tenant and geographic concentration, including lease expirations: 20.4% of annualized base rent was scheduled to expire in 2013.
- Liquidity after acquisitions and dividends, and the company’s ability to refinance or repay debt around 2013 maturities.
- Exposure to variable rates: management estimated a 0.25% LIBOR change would affect annual interest expense by approximately $53,000 on the outstanding credit-facility and term-loan balances.
- How reported GAAP losses, FFO, and Adjusted EBITDA reconcile, and whether acquisition-driven growth translates into sustained operating cash flow.