Terreno Realty Corporation — FY 2021 Form 10-K
Reporting period: Year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter filing. Terreno owns and operates industrial properties in six coastal U.S. markets and is taxed as a REIT.
Business and portfolio
At year-end, Terreno owned 253 buildings totaling approximately 15.1 million square feet, 36 improved land parcels totaling 127.1 acres, and four properties under redevelopment. Buildings were 95.5% leased and land parcels 94.8% leased; the building occupancy figure includes 0.4 million square feet of vacancy acquired in Miami during Q4. The portfolio served 554 customers; the largest represented 4.9% of annualized base rent. Warehouse/distribution accounted for 79.5% of annualized base rent.
Financial and operating metrics
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Total revenue | $221.9 million | $186.9 million |
| Net income | $87.3 million | $79.8 million |
| Diluted EPS | $1.23 | $1.16 |
| FFO attributable to common stockholders | $120.8 million; $1.71 per diluted share | $98.3 million; $1.44 per diluted share |
| Net operating income (NOI) | $165.7 million | $137.8 million |
| Net cash from operating activities | $132.2 million | $101.1 million |
| Cash and cash equivalents at year-end | $204.4 million | $107.2 million |
| Total debt, net of financing costs | $720.7 million | $459.1 million |
Revenue increased 18.8%; NOI rose 20.2%, and same-store NOI grew 11.9%. Cash-basis same-store NOI increased 7.8% (10.8% excluding lease termination fees). Rent on new and renewed leases covering approximately 2.6 million square feet that commenced in 2021 was 28.4% above prior rents. Net income was approximately 39% of revenue; NOI was approximately 75% of revenue.
Cash used in investing was $666.4 million, principally reflecting property acquisitions and capital spending. Cash provided by financing was $631.2 million, largely from equity issuance and new notes, partly offset by dividends and mortgage repayment. Capital expenditures were $67.8 million, versus $38.6 million in 2020.
Debt was $725 million at face value, including a $100 million variable-rate term loan and $625 million of senior unsecured notes; the $250 million revolver was undrawn. Weighted-average debt interest rate was 2.9%; debt-to-adjusted EBITDA was 4.5x, interest coverage 8.3x, and fixed-charge coverage 8.0x. No properties were encumbered at year-end. The company reported compliance with debt covenants.
Material changes versus prior year
- Terreno acquired 34 properties for an initial total investment of approximately $682 million, compared with 11 properties and approximately $100 million in 2020.
- Same-store occupancy increased to 98.2% from 98.0%. Acquisitions and leasing gains contributed to growth in revenue, NOI, FFO, and operating cash flow.
- Net income growth was partly supported by $16.6 million of gains on property sales, down from $26.8 million in 2020. Terreno sold two properties in 2021 for $43.0 million in aggregate, recognizing $16.6 million of gains.
- Debt increased, while debt-to-market-capitalization was 10.1%, compared with 10.3% in 2020. Common shares outstanding also increased following public and at-the-market offerings.
- Quarterly dividends rose during the year; total declared dividends were $1.26 per share, versus $1.12 in 2020.
Outlook, commentary, risks, and unusual items
- Management described operating conditions in its six markets as excellent and expects rents on 2022 expirations, representing 10.6% of portfolio annualized base rent, to average above current rents. Management cautioned that new speculative development could moderate rent growth. No quantified earnings or FFO guidance was provided.
- Management said the balance sheet was well positioned for growth entering 2022, citing approximately $204.4 million of cash and no revolver borrowings. Five contracted acquisitions totaling $125.8 million remained subject to due diligence and closing conditions; four additional properties were under non-binding letters of intent for approximately $94.9 million.
- COVID-19 effects on occupancy, rent collections, and acquisitions had largely returned to pre-pandemic levels during 2021, but future impacts remain uncertain. Inflation raised construction and operating costs; tenant expense recoveries and lease rent escalators mitigate, but do not eliminate, exposure.
- Key risks include leasing and tenant-default risk, acquisition pricing and execution, redevelopment costs and timing, interest-rate and LIBOR-transition risk, capital-market access, and geographic concentration. Northern New Jersey/New York City generated 27.3% of annualized base rent.
- Four redevelopment projects had an expected total investment of $75.8 million, with $10.6 million remaining to spend at year-end. No property impairment charges were recorded in 2019–2021. The auditor issued unqualified opinions on the financial statements and internal controls; valuation of acquired properties was identified as a critical audit matter.
Most important facts for investors to verify
- Whether the 0.4 million square feet of recently acquired Miami vacancy is leased and how that affects reported occupancy and returns.
- Realized rent spreads, renewals, and tenant retention against management’s expectations for 2022 expirations.
- Completion costs, timing, pre-leasing, and stabilized returns for redevelopment projects and pending acquisitions.
- Debt maturities, variable-rate exposure and refinancing costs; $50 million of notes mature in 2022, and the term loan was unhedged at year-end.
- Per-share FFO and cash available for distributions after acquisition spending, capital expenditures, debt service, and equity dilution.