Terreno(TRNO) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents Terreno Realty Corporation's unaudited consolidated financial statements for Q3 and nine months ended September 30, 2023 Consolidated Balance Sheets As of September 30, 2023, total assets increased to $3.74 billion, liabilities grew moderately to $1.00 billion, and stockholders' equity expanded to $2.74 billion, driven by real estate investments and capital raising Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $3,739,465 | $3,164,441 | | Net investments in real estate | $3,567,320 | $3,075,143 | | Cash and cash equivalents | $96,196 | $26,393 | | Total Liabilities | $1,002,495 | $934,590 | | Senior unsecured notes, net | $572,269 | $571,825 | | Total Stockholders' Equity | $2,736,970 | $2,229,851 | Consolidated Statements of Operations For Q3 2023, total revenues increased 17.1% to $82.9 million and net income rose 35.1% to $30.3 million, while nine-month net income decreased 32.5% to $93.9 million due to lower real estate sale gains Statement of Operations Summary (in thousands, except EPS) | Metric | Q3 2023 | Q3 2022 | YoY Change | Nine Months 2023 | Nine Months 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $82,920 | $70,801 | +17.1% | $237,106 | $200,205 | +18.4% | | Net Income | $30,315 | $22,439 | +35.1% | $93,900 | $139,134 | -32.5% | | Gain on sales of real estate | $0 | $0 | N/A | $12,257 | $76,048 | -83.9% | | Diluted EPS | $0.36 | $0.30 | +20.0% | $1.13 | $1.84 | -38.6% | Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, operating cash flow increased to $140.6 million, investing activities used $479.6 million, and financing activities provided $411.2 million, resulting in a net cash increase of $72.1 million Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $140,626 | $109,019 | | Net cash used in investing activities | ($479,637) | ($313,803) | | Net cash provided by financing activities | $411,150 | $10,980 | | Net increase (decrease) in cash | $72,139 | ($193,804) | Condensed Notes to Consolidated Financial Statements Provides detailed context for financial statements, covering organization, accounting policies, real estate, debt, and equity activities - The company acquires, owns, and operates industrial real estate in six major coastal U.S. markets. As of September 30, 2023, its portfolio consisted of 257 buildings (15.8 million sq. ft.), 46 improved land parcels (165.8 acres), and eight properties under development[21] - During the nine months ended September 30, 2023, the company acquired five industrial properties for a total investment of approximately $437.0 million[48] - In the same nine-month period, one property was sold for $25.5 million, generating a gain of approximately $12.3 million[57] - As of September 30, 2023, the company had $775.0 million of unsecured debt and no secured debt. Total debt, net of issuance costs, was $771.4 million[58][61] - In February 2023, a public offering of 5,750,000 shares of common stock generated net proceeds of approximately $355.9 million. The company also actively used its at-the-market (ATM) equity programs[67] - Subsequent to the quarter's end, the company sold one property for $18.0 million, acquired two properties for a combined $73.2 million, and declared a quarterly dividend of $0.45 per share[81][82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses business overview, strategic activities, and financial performance, highlighting portfolio occupancy, cash rent growth, and revenue and NOI trends Overview Terreno operates a portfolio of industrial real estate in six major U.S. coastal markets, with high occupancy rates of 98.3% for buildings and 96.3% for improved land parcels as of September 30, 2023 Portfolio Summary by Market (as of Sep 30, 2023) | Market | % of Total Annualized Base Rent | Building Occupancy | Gross Book Value (in thousands) | | :--- | :--- | :--- | :--- | | Los Angeles | 18.0% | 98.7% | $704,688 | | Northern New Jersey/New York City | 24.3% | 99.1% | $787,136 | | San Francisco Bay Area | 19.4% | 97.1% | $763,929 | | Seattle | 16.0% | 96.4% | $606,522 | | Miami | 12.3% | 100.0% | $737,349 | | Washington, D.C. | 10.0% | 99.1% | $339,309 | - Cash rents on new and renewed leases commencing in the nine months ended September 30, 2023, were approximately 57.1% higher than the previous rental rates for the same space[98] - Leases representing approximately 12.1% of the total annualized base rent are scheduled to expire through December 31, 2024[98] Recent Developments During Q3 2023, the company acquired one industrial property for $14.8 million, advanced its substantial development pipeline, and raised $94.4 million in net proceeds from ATM programs - Acquired one industrial property in Santa Ana, CA for $14.8 million during Q3 2023, with an estimated stabilized cap rate of 5.1%[100] Development & Redevelopment Pipeline Summary | Metric | Value | | :--- | :--- | | Properties in Pipeline | 8 | | Total Expected Investment | $336.1 million | | Amount Spent to Date | $213.0 million | | Estimated Stabilized Cap Rate | 5.3% | | Total Post Development Sq. Ft. | 1,231,624 | | % Pre-leased | 68.1% | - In the first nine months of 2023, the company issued 2,542,279 shares under its ATM programs for net proceeds of approximately $154.4 million[106] Results of Operations The company's financial results show strong growth in Q3 2023, with total revenues up 17.1% and same-store NOI up 8.6%, though nine-month net income declined due to lower real estate sale gains Q3 2023 vs. Q3 2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $82,920 | $70,801 | $12,119 | 17.1% | | Net Operating Income (NOI) | $62,451 | $53,661 | $8,790 | 16.4% | | Same Store NOI | $51,413 | $47,350 | $4,063 | 8.6% | | Net Income | $30,315 | $22,439 | $7,876 | 35.1% | Nine Months 2023 vs. Nine Months 2022 Performance (in thousands) | Metric | Nine Months 2023 | Nine Months 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $237,106 | $200,205 | $36,901 | 18.4% | | Net Operating Income (NOI) | $179,670 | $150,385 | $29,285 | 19.5% | | Same Store NOI | $150,279 | $136,270 | $14,009 | 10.3% | | Net Income | $93,900 | $139,134 | ($45,234) | (32.5)% | Liquidity and Capital Resources The company maintains a conservative financing strategy with a long-term goal of limiting debt to less than 35% of total enterprise value, supported by strong liquidity and active equity offerings - The company's financing strategy includes maintaining a debt-to-adjusted EBITDA ratio below 6.0x and a fixed charge coverage ratio above 2.0x[135] Key Financial Ratios (as of Sep 30, 2023) | Ratio | Value | | :--- | :--- | | Total Debt-to-Total Market Capitalization | 13.7% | | Total Debt-to-Adjusted EBITDA | 3.3x | | Interest Coverage | 8.7x | | Fixed Charge Coverage | 6.7x | | Weighted Average Maturity of Total Debt | 4.6 years | - As of September 30, 2023, the company had no borrowings outstanding on its $400.0 million revolving credit facility[142] Non-GAAP Financial Measures This section provides reconciliations for key non-GAAP metrics, with Q3 2023 FFO attributable to common stockholders increasing 23.2% to $48.3 million and cash-basis same-store NOI growing 13.1% year-over-year FFO Performance (in thousands, except per share) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | FFO attributable to common stockholders | $48,282 | $39,202 | +23.2% | | Diluted FFO per common share | $0.57 | $0.52 | +9.6% | NOI Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Same store NOI | $51,413 | $47,350 | +8.6% | | Cash-basis same store NOI | $48,811 | $43,144 | +13.1% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $200.0 million variable-rate debt, where a 25 basis point change in SOFR would impact annual interest expense by approximately $0.5 million - The company's primary market risk is interest rate risk on its variable-rate debt, which stood at $200.0 million as of September 30, 2023[169][170] - A 25 basis point fluctuation in the SOFR rate would impact annual interest expense by approximately $0.5 million[170] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the reporting period[171] - No material changes were identified in the company's internal control over financial reporting during the third quarter of 2023[172] PART II. OTHER INFORMATION Item 1. 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 legal proceedings[175] Item 1A. 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, 2022 - No material changes to the risk factors disclosed in the 2022 Form 10-K have occurred[176] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities During Q3 2023, the company repurchased 12,499 shares of common stock to satisfy employee tax withholding obligations on vested restricted stock, not as part of a publicly announced plan - In August 2023, 12,499 shares were repurchased at an average price of $58.85 per share to satisfy employee tax withholding obligations on vested restricted stock[177] Item 5. Other Information During the third quarter of 2023, no directors or officers of the company adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer trading plans (Rule 10b5-1 or other) were adopted, terminated, or modified during the quarter[180] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL financial data files - The exhibits filed with this report include certifications under Rule 13a-14(a)/15d-14(a) and Section 1350, as well as Inline XBRL documents[181]