Terreno(TRNO) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls Financial Statements (Unaudited) This section presents Terreno Realty Corporation's unaudited consolidated financial statements, including balance sheets, statements of operations, cash flows, and comprehensive income, along with condensed notes for the periods ended June 30, 2022 Consolidated Balance Sheets Total assets increased to $3.03 billion as of June 30, 2022, from $2.92 billion at December 31, 2021, primarily driven by growth in net investments in properties Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $3,028,882 | $2,924,215 | | Net investments in properties | $2,959,872 | $2,667,764 | | Cash and cash equivalents | $7,237 | $204,404 | | Total Liabilities | $899,297 | $866,252 | | Senior unsecured notes, net | $621,514 | $621,175 | | Total Stockholders' Equity | $2,129,585 | $2,057,963 | Consolidated Statements of Operations For the second quarter of 2022, total revenues increased 22.7% year-over-year to $65.4 million, with net income surging to $97.0 million largely due to a $76.0 million gain on real estate sales Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $65,369 | $53,295 | $129,404 | $103,986 | | Gain on sales of real estate | $76,048 | $— | $76,048 | $— | | Net Income | $97,033 | $17,378 | $116,695 | $33,635 | | Diluted EPS | $1.28 | $0.25 | $1.54 | $0.48 | Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash from operating activities was $63.2 million, while investing activities used $219.1 million and financing activities used $38.6 million, resulting in a net decrease in cash of $194.5 million Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $63,227 | $59,224 | | Net cash used in investing activities | ($219,057) | ($183,414) | | Net cash (used in) provided by financing activities | ($38,638) | $59,062 | | Net decrease in cash | ($194,468) | ($65,128) | Condensed Notes to Consolidated Financial Statements These notes provide detailed explanations of the company's accounting policies and specifics on financial statement items, covering organization, property transactions, debt, leasing, equity, and subsequent events - The company acquires, owns, and operates industrial real estate in six major coastal U.S. markets, owning 249 buildings (15.1M sq. ft.), 42 improved land parcels (147.7 acres), and four properties under redevelopment as of June 30, 2022[25] - During the six months ended June 30, 2022, the company acquired 12 industrial properties for a total investment of approximately $291.9 million[53] - During the six months ended June 30, 2022, the company sold one property for approximately $110.4 million, resulting in a gain of about $76.0 million[61] - On August 2, 2022, the board declared a cash dividend of $0.40 per share, payable on October 14, 2022[91] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance for Q2 and H1 2022, covering portfolio overview, acquisition and disposition activities, capital structure, liquidity, and operating results, including non-GAAP measures Portfolio Overview As of June 30, 2022, the company owned 249 buildings and 42 improved land parcels across six major coastal U.S. markets, with the portfolio 97.9% leased for buildings and 97.0% for land Portfolio Summary by Market (as of June 30, 2022) | Market | % of Total Annualized Base Rent | Building Occupancy % | | :--- | :--- | :--- | | Northern New Jersey/New York City | 24.9% | 96.1% | | Los Angeles | 17.9% | 99.3% | | Seattle | 17.9% | 97.5% | | San Francisco Bay Area | 17.7% | 99.9% | | Miami | 11.1% | 99.6% | | Washington, D.C. | 10.5% | 94.1% | - Cash rent on new and renewed leases commencing in Q2 2022 increased by approximately 55.4% compared to previous rates for the same space[104] Recent Developments In Q2 2022, the company acquired ten industrial properties for $203.3 million and amended its credit facility, increasing the revolver to $400 million and transitioning from LIBOR to SOFR - Acquired ten industrial properties for a total purchase price of approximately $203.3 million during Q2 2022[106] - Sold one property in H1 2022 for ~$110.4 million, realizing a gain of ~$76.0 million[112] - Amended its credit facility, increasing the revolving credit capacity by $150.0 million to $400.0 million and transitioning the interest rate benchmark from LIBOR to SOFR[114] Comparison of Results of Operations For Q2 2022, total revenues grew 22.7% to $65.4 million, driven by acquisitions and a 7.1% increase in same-store NOI, while six-month revenues grew 24.4% to $129.4 million with same-store NOI up 8.0% Q2 2022 vs. Q2 2021 Performance (in thousands) | Metric | Q2 2022 | Q2 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $65,369 | $53,295 | $12,074 | 22.7% | | Total Net Operating Income | $49,565 | $40,124 | $9,441 | 23.5% | | Same Store NOI | $39,660 | $37,040 | $2,620 | 7.1% | | Net Income | $97,033 | $17,378 | $79,655 | 458.4% | Six Months 2022 vs. Six Months 2021 Performance (in thousands) | Metric | H1 2022 | H1 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $129,404 | $103,986 | $25,418 | 24.4% | | Total Net Operating Income | $96,724 | $77,303 | $19,421 | 25.1% | | Same Store NOI | $78,307 | $72,501 | $5,806 | 8.0% | | Net Income | $116,695 | $33,635 | $83,060 | 246.9% | Liquidity and Capital Resources The company aims to maintain a conservative capital structure with a long-term target of debt-to-total enterprise value below 35%, funding short-term needs through operations and a $400 million revolving credit facility - Long-term financial strategy targets include limiting debt + preferred stock to less than 35% of total enterprise value and maintaining a debt-to-adjusted EBITDA ratio below 6.0x[145] - As of August 2, 2022, the company had contracts to acquire three properties for a total of $51.3 million and non-binding letters of intent for another three properties for an anticipated $78.5 million[87][88][163] Capitalization Ratios (as of June 30, 2022) | Ratio | Value | | :--- | :--- | | Total Debt-to-Total Investments in Properties | 22.5% | | Total Debt-to-Total Market Capitalization | 14.8% | | Total Debt-to-Adjusted EBITDA | 4.1x | | Fixed Charge Coverage | 7.4x | Non-GAAP Financial Measures The company uses FFO, Adjusted EBITDA, and NOI as key supplemental performance measures, with Q2 2022 FFO attributable to common stockholders at $36.1 million and cash-basis same-store NOI growing 11.3% Funds from Operations (FFO) (in thousands, except per share) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | FFO attributable to common stockholders | $36,108 | $29,239 | $70,588 | $56,773 | | Diluted FFO per common share | $0.48 | $0.42 | $0.94 | $0.82 | Cash-Basis Same Store NOI (in thousands) | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Cash-basis same store NOI | $37,925 | $34,076 | 11.3% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk from its $100.0 million variable-rate debt, where a 0.25% SOFR change would impact annual interest expense by approximately $0.3 million, with agreements transitioned to SOFR to mitigate LIBOR discontinuation risks - The primary market risk is interest rate risk, with $100.0 million of variable-rate debt outstanding under its Amended Facility as of June 30, 2022[178][179] - A hypothetical 0.25% fluctuation in the SOFR rate would change annual interest expense by approximately $0.3 million based on the outstanding balance at June 30, 2022[179] - The company has addressed the discontinuation of LIBOR by transitioning its variable rate debt agreements to SOFR[180] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of the end of the period, disclosure controls and procedures were effective[182] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[183] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report Legal Proceedings The company reports that it is not involved in any material litigation, nor is it aware of any material litigation being threatened against it - The company is not involved in any material litigation[186] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors disclosed in the 2021 Annual Report on Form 10-K have occurred[187] Unregistered Sales of Equity Securities and Use of Proceeds This item is marked as not applicable - Not Applicable[191] Exhibits This section lists the exhibits filed with the Form 10-Q, including the amendment to the senior credit agreement, officer certifications, and XBRL data files - Exhibits filed include the First Amendment to the Sixth Amended and Restated Senior Credit Agreement, CEO/CFO certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. § 1350), and Inline XBRL documents[192]