TERRENO REALTY CORPORATION
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We
caution investors that forward-looking statements are based on management's
beliefs and on assumptions made by, and information currently available to,
management. When used, the words "anticipate", "believe", "estimate", "expect",
"intend", "may", "might", "plan", "project", "result", "should", "will", "seek",
"target", "see", "likely", "position", "opportunity", "outlook" and similar
expressions which do not relate solely to historical matters are intended to
identify forward-looking statements. These statements are subject to risks,
uncertainties, and assumptions and are not guarantees of future performance,
which may be affected by known and unknown risks, trends, uncertainties, and
factors that are beyond our control. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, or
projected. We expressly disclaim any responsibility to update our
forward-looking statements, whether as a result of new information, future
events, or otherwise, except as required by law. Accordingly, investors should
use caution in relying on past forward-looking statements, which are based on
results and trends at the time they are made, to anticipate future results or
trends.
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Some of the risks and uncertainties that may cause our actual results,
performance, or achievements to differ materially from those expressed or
implied by forward-looking statements include, among others, the following:
•the factors included under the headings "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31, 2020 , which was filed
with the Securities and Exchange Commission on February 10, 2021 , in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 , which was
filed with the Securities and Exchange Commission on May 5, 2021 , in our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 , which was
filed with the Securities and Exchange Commission on August 4, 2021 , in this
Quarterly Report on Form 10-Q and in our other public filings, which you should
interpret as being heightened as a result of the numerous and ongoing adverse
impacts of COVID-19;
•our ability to identify and acquire industrial properties on terms favorable to
us;
•general volatility of the capital markets and the market price of our common
stock;
•adverse economic or real estate conditions or developments in the industrial
real estate sector and/or in the markets in which we acquire properties;
•our dependence on key personnel and our reliance on third-party property
managers;
•our inability to comply with the laws, rules and regulations applicable to
companies, and in particular, public companies;
•our ability to manage our growth effectively;
•tenant bankruptcies and defaults on or non-renewal of leases by tenants;
•decreased rental rates or increased vacancy rates;
•increased interest rates and operating costs;
•the potential discontinuation of London Interbank Offered Rate ("LIBOR");
•declining real estate valuations and impairment charges;
•our expected leverage, our failure to obtain necessary outside financing, and
existing and future debt service obligations;
•our ability to make distributions to our stockholders;
•our failure to successfully hedge against interest rate increases;
•our failure to successfully operate acquired properties;
•risks relating to our real estate redevelopment, renovation and expansion
strategies and activities;
•the ongoing impact of COVID-19 on the U.S. , regional and global economies and
the business, financial condition and results of operations of our Company and
our tenants;
•our failure to qualify or maintain our status as a real estate investment trust
("REIT"), and possible adverse changes to tax laws;
•uninsured or underinsured losses and costs relating to our properties or that
otherwise result from future litigation;
•environmental uncertainties and risks related to natural disasters;
•financial market fluctuations; and
•changes in real estate and zoning laws and increases in real property tax
rates.
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Overview
Terreno Realty Corporation ("Terreno", and together with its subsidiaries, "we",
"us", "our", "our Company", or "the Company") acquires, owns and operates
industrial real estate in six major coastal U.S. markets: Los Angeles , Northern
New Jersey /New York City , San Francisco Bay Area , Seattle , Miami , and
Washington, D.C. We invest in several types of industrial real estate, including
warehouse/distribution (approximately 80.5% of our annualized base rent as of
September 30, 2021 ), flex buildings (including light industrial and research and
development, or R&D, approximately 4.9%), transshipment (approximately 6.0%),
and improved land parcels (approximately 8.6%). We target functional buildings
in infill locations that may be shared by multiple tenants and that cater to
customer demand within the various submarkets in which we operate. Infill
locations are geographic locations surrounded by high concentrations of already
developed land and existing buildings. As of September 30, 2021 , we owned a
total of 241 buildings (including three buildings held for sale) aggregating
approximately 14.1 million square feet, 31 improved land parcels consisting of
approximately 114.7 acres and four properties under redevelopment expected to
contain approximately 0.4 million square feet upon completion. As of
September 30, 2021 , the buildings and improved land parcels were approximately
98.0% and 96.1% leased, respectively, to 548 customers, the largest of which
accounted for approximately 5.2% of our total annualized base rent. See "Item 1
- Our Investment Strategy - Industrial Facility General Characteristics" in our
Annual Report on Form 10-K for the year ended December 31, 2020 for a general
description of these types of industrial real estate.
We are an internally managed Maryland corporation and elected to be taxed as a
REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended, or the Code, commencing with our taxable year ended December 31, 2010 .
The following table summarizes by type our investments in real estate as of
September 30, 2021 :
Number of Buildings or Annualized Base Rent
Type Improved Land Parcels (in thousands) 1 % of Total
Warehouse/distribution 212 $ 137,531 80.5 %
Flex 12 8,423 4.9 %
Transshipment 17 10,322 6.0 %
Improved land 31 14,702 8.6 %
Total 272 $ 170,978 100.0 %
1Annualized base rent is calculated as contractual monthly base rent per the
leases, excluding any partial or full rent abatements, as of September 30, 2021 ,
multiplied by 12.
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The following table summarizes by market our investments in real estate as of
September 30, 2021 :
Northern New
Jersey/New York San Francisco Total/Weighted
Los Angeles City Bay Area Seattle Miami Washington, D.C. Average
Investments in Real Estate
Number of Buildings 49 63 46 36 29 18 241
Rentable Square Feet 2,678,531 3,570,180 2,196,337 2,309,059 1,808,591 1,534,625 14,097,323 % of Total 19.0 % 25.3 % 15.6 % 16.4 % 12.8 % 10.9 % 100.0 % Occupancy % as of September 30, 2021 98.3 % 98.5 % 96.5 % 99.7 % 95.4 % 99.0 % 98.0 % Annualized Base Rent (in thousands) 1$ 26,823 $ 43,366 $ 29,006 $ 23,668 $ 15,820 $ 17,592 $ 156,275 % of Total 17.2 % 27.7 % 18.6 % 15.1 % 10.1 % 11.3 % 100.0 % Annualized Base Rent 1 Per Occupied Square Foot$ 10.18 $ 12.34 $ 13.68 $ 10.28 $ 9.17 $ 11.58$ 11.31 Weighted Average Remaining Lease Term (Years) 2 6.2 4.8 3.3 3.8 4.7 3.2
4.5
Investments in Improved Land
Number of Land Parcels 8 10 3 7 2 1 31
Acres 16.4 54.1 7.1 20.5 3.2 13.4 114.7
% of Total 14.3 % 47.1 % 6.2 % 17.9 % 2.8 % 11.7 % 100.0 %
Occupancy % as of September 30, 2021 88.0 % 95.4 % 100.0 % 100.0 % 100.0 % 100.0 % 96.1 %
Annualized Base Rent
(in thousands) 1 $ 3,334 $ 6,369 $ 1,405 $ 2,305 $ 422 $ 868 $ 14,703
% of Total 22.7 % 43.2 % 9.6 % 15.7 % 2.9 % 5.9 % 100.0 %
Annualized Base Rent 1 Per Occupied
Square Foot $ 5.30 $ 2.91 $ 4.56 $ 2.73 $ 3.07 $ 1.49 $ 3.11
Weighted Average Remaining Lease Term
(Years) 2 3.8 6.2 3.6 3.3 2.8 8.3 5.3
Total Investments in Real Estate and Improved Land Annualized Base Rent (in thousands) 1$ 30,157 $ 49,735 $ 30,411 $ 25,973 $ 16,242 $ 18,460 $ 170,978 % of Total Annualized Base Rent 1 17.6 % 29.1 % 17.8 % 15.2 % 9.5 % 10.8 % 100.0 % Gross Book Value (in thousands) 3$ 503,384 $ 718,269 $ 428,832 $ 482,947 $ 264,199 $ 218,046 $ 2,615,677 % of Total Gross Book Value 19.2 % 27.5 % 16.4 % 18.5 % 10.1 % 8.3 % 100.0 % 1Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as ofSeptember 30, 2021 , multiplied by 12. 2Weighted average remaining lease term is calculated by summing the remaining lease term of each lease as ofSeptember 30, 2021 , weighted by the respective square footage. 3Includes four properties under redevelopment expected to contain approximately 0.4 million square feet upon completion, as discussed below and one property held for sale with a gross book value of approximately$23.6 million ). As ofSeptember 30, 2021 , we owned four properties under redevelopment expected to contain approximately 0.4 million square feet upon completion with a total expected investment of approximately$117.8 million , including redevelopment costs, capitalized interest and other costs. 22
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The following table summarizes our capital expenditures incurred during the
three and nine months ended
For the Three Months Ended September For the Nine Months Ended September
30, 30,
2021 2020 2021 2020
Building improvements $ 9,320 $ 4,507 $ 21,014 $ 12,101
Tenant improvements 3,538 677 6,958 1,705
Leasing commissions 4,495 5,284 12,222 9,710
Redevelopment, renovation and
expansion 4,052 3,184 9,935 6,761
Total capital expenditures 1
1Includes approximately$14.2 million and$6.5 million for the three months endedSeptember 30, 2021 and 2020, respectively, and approximately$28.0 million and$15.4 million for the nine months endedSeptember 30, 2021 and 2020, respectively, related to leasing acquired vacancy, redevelopment construction in progress and renovation and expansion projects (stabilization capital) at 15 and 13 properties for the three months endedSeptember 30, 2021 and 2020, respectively, and at 17 and 14 properties for the nine months endedSeptember 30, 2021 and 2020, respectively. Our industrial properties are typically subject to leases on a "triple net basis," in which tenants pay their proportionate share of real estate taxes, insurance and operating costs, or are subject to leases on a "modified gross basis," in which tenants pay expenses over certain threshold levels. In addition, approximately 95.2% of our leased space includes fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years. We monitor the liquidity and creditworthiness of our tenants on an on-going basis by reviewing outstanding accounts receivable balances, and as provided under the respective lease agreements, review the tenant's financial condition periodically as appropriate. As needed, we hold discussions with the tenant's management about their business and we conduct site visits of the tenant's operations. 23 -------------------------------------------------------------------------------- Table of Contents Our top 20 customers based on annualized base rent as ofSeptember 30, 2021 are as follows: % of Total Annualized % of Total Rentable Rentable Base Rent Annualized Customer Leases Square Feet Square Feet (in thousands) 1 Base Rent 1 Amazon.com 2 6 471,880 3.3 % $ 8,898 5.2 % 2 FedEx Corporation 3 7 300,779 2.1 % 5,236 3.1 % 3 Danaher 3 171,707 1.2 % 3,844 2.2 % 4 United States Government 8 300,732 2.1 % 3,757 2.2 % 5 District of Columbia 7 234,071 1.7 % 3,332 1.9 % 6 DirectBuy Home Improvement 1 230,891 1.6 % 2,011 1.2 % 7 Costco-Innovel Solutions LLC 1 219,910 1.6 % 1,870 1.1 % 8 Port Kearny Security, Inc. 4 1 - - % 1,800 1.1 % 9 XPO Logistics 2 180,717 1.3 % 1,764 1.0 % 10 L3 Harris Technologies, Inc. 1 147,898 1.0 % 1,700 1.0 % 11 O'Neill Logistics 2 237,692 1.7 % 1,606 0.9 % 12 Bar Logistics 1 203,263 1.4 % 1,546 0.9 % 13 Topaz Lighting Corp. 1 190,000 1.3 % 1,507 0.9 % 14 Envogue International 1 192,000 1.4 % 1,454 0.9 % 15 YRC 2 61,252 0.4 % 1,441 0.8 % 16 United States Postal Service 2 53,000 0.4 % 1,438 0.8 % 17 Lilac Solutions Inc. 1 92,884 0.7 % 1,378 0.8 % 18Saia Motor Freight Line LLC 1 52,086 0.4 % 1,315 0.8 % 19 Northrop Grumman Systems Corporation 1 103,200 0.7 % 1,300 0.8 % 20 Premium Transportation Services, Inc. 1 40,000 0.4 % 1,295 0.8 % Total 50 3,483,962 24.7 % $ 48,492 28.4 % 1Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as ofSeptember 30, 2021 , multiplied by 12. 2Includes two improved land parcels consisting of approximately 6.2 acres. 3Includes two improved land parcels consisting of approximately 7.7 acres. 4Includes an improved land parcel consisting of approximately 16.9 acres. The following table summarizes the anticipated lease expirations for leases in place as ofSeptember 30, 2021 , without giving effect to the exercise of unexercised renewal options or termination rights, if any, at or prior to the scheduled expirations: % of Total Rentable Annualized Base Rent % of Total Annualized Year Rentable Square Feet Square Feet (in thousands) 2, 3 Base Rent 2021 (3 months) 1 554,023 3.9 % 4,114 2.1 % 2022 1,834,622 13.0 % 19,620 10.1 % 2023 1,993,796 14.1 % 26,725 13.7 % 2024 1,783,109 12.6 % 24,547 12.6 % 2025 1,608,763 11.4 % 25,538 13.1 % Thereafter 6,042,046 43.0 % 94,488 48.4 % Total 13,816,359 98.0 % 195,032 100.0 % 1Includes leases that expire on or afterSeptember 30, 2021 and month-to-month leases totaling approximately 44,699 square feet. 2Annualized base rent is calculated as contractual monthly base rent per the leases at expiration, excluding any partial or full rent abatements, as ofSeptember 30, 2021 , multiplied by 12. 3Includes annualized base rent related to 31 improved land parcels totaling approximately 114.7 acres. 24 -------------------------------------------------------------------------------- Table of Contents Our ability to re-lease or renew expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. As ofSeptember 30, 2021 , leases representing approximately 12.2% of the total annualized base rent of our portfolio are scheduled to expire throughDecember 31, 2022 . We currently expect that, on average, the rental rates we are likely to achieve on new (re-leased) or renewed leases for our 2021 expirations will be above the rates currently being paid for the same space. Rent changes on new and renewed leases totaling approximately 0.8 million square feet commencing during the three months endedSeptember 30, 2021 were approximately 34.9% higher as compared to the previous rental rates for that same space, and rent changes on new and renewed leases totaling approximately 1.9 million square feet commencing during the nine months endedSeptember 30, 2021 were approximately 26.8% higher as compared to the previous rental rates for that same space. We had a tenant retention ratio of 57.5% and 67.4%, respectively, for the three and nine months endedSeptember 30, 2021 . We define tenant retention ratio as the square footage of all leases commenced during the period that are rented by existing tenants divided by the square footage of all expiring leases during the reporting period. The square footage of tenants that default or buy-out prior to expiration of their lease and short-term leases of less than one year are not included in the calculation. Our past performance may not be indicative of future results, and we cannot assure you that leases will be renewed or that our properties will be re-leased at all or at rental rates equal to or above the current average rental rates. Further, re-leased/renewed rental rates in a particular market may not be consistent with rental rates across our portfolio as a whole and re-leased/renewed rental rates for particular properties within a market may not be consistent with rental rates across our portfolio within a particular market, in each case due to a number of factors, including local real estate conditions, local supply and demand for industrial space, the condition of the property, the impact of leasing incentives, including free rent and tenant improvements and whether the property, or space within the property, has been redeveloped. Recent Developments Acquisition Activity During the three months endedSeptember 30, 2021 , we acquired 10 industrial properties for a total purchase price of approximately$167.0 million . The properties were acquired from unrelated third parties using existing cash on hand and net proceeds from the issuance of common stock. The following table sets forth the industrial properties we acquired during the three months endedSeptember 30, 2021 : Number of Square Purchase Price Stabilized PropertyName Location Acquisition Date Buildings Feet (in thousands) 1 Cap Rate 2 Acreage Countyline #26Hialeah, Florida July 14, 2021 1 220,942 $ 39,409 3.7 % - 13020 & 13030 CeriseHawthorne, California July 14, 2021 2 21,846 8,075 5.4 % - 1150 &1250 W. Trenton Ave Orange, California July 30, 2021 2 34,224 9,335 3.6 % - MLK 9801Seattle, Washington August 11, 2021 - - 11,900 2.4 % 3.1 MLK 9845Seattle, Washington August 11, 2021 - - 15,750 3.4 % 3.4 MLK 9600Seattle, Washington August 11, 2021 - - 22,350 4.9 % 5.2Foley Street Hayward, California August 26, 2021 2 40,504 8,250 4.9 % - Paterson Plank IIICarlstadt, New Jersey August 27, 2021 - - 17,850 4.5 % 4.997 Third Street Kearny, New Jersey September 27, 2021 - - 26,250 3.1 % 5.4 13025 CeriseHawthorne, California September 30, 2021 1 21,000 7,875 2.9 % - Total/Weighted Average 8 338,516 $ 167,044 3.8 % 22.0 1Excludes intangible liabilities and mortgage premiums, if any. The total aggregate initial investment was approximately$176.8 million , including$3.9 million in capitalized closing costs and acquisition costs and$10.8 million in assumed intangible liabilities and$4.9 million in other credits related to near term capital expenditures at the Countyline #26 property. 2Stabilized capitalization rates, referred to herein as stabilized cap rates, are calculated, at the time of acquisition, as annualized cash basis net operating income for the property stabilized to market occupancy (generally 95%) divided by the total acquisition cost for the property. Total acquisition cost basis for the property includes the initial purchase price, the effects of marking assumed debt to market, buyer's due diligence and closing costs, estimated near-term 25 -------------------------------------------------------------------------------- Table of Contents capital expenditures and leasing costs necessary to achieve stabilization. We define cash basis net operating income for the property as net operating income excluding straight-line rents and amortization of lease intangibles. These stabilized cap rates are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control, including risks related to our ability to meet our estimated forecasts related to stabilized cap rates and those risk factors contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and in our other public filings. Redevelopment Activity As ofSeptember 30, 2021 , we have four properties under redevelopment expected to contain approximately 0.4 million square feet upon completion with a total expected investment of approximately$117.8 million , including redevelopment costs, capitalized interest and other costs as follows: Estimated Amount Total Expected Amount Spent to Remaining to Estimated Estimated Investment (in Date (in Spend (in Stabilized Cap Estimated Post-Development Completion % Pre-leased PropertyName thousands) 1 thousands) thousands) Rate 2 Square Feet QuarterSeptember 30, 2021 Sodo Row - North & South$ 66,609 $ 63,145 $ 3,464 5.0 % 234,308 Q4 2021 64.8 % AmericasGateway 5 7,429 5,673 1,756 5.5 % 51,800 Q4 2022 - %73rd Street 20,136 12,493 7,643 5.1 % 129,000 Q4 2022 - % Paterson Plank III 23,643 18,638 5,005 4.5 % N/A Q4 2022 - % Total/Weighted Average$ 117,817 $ 99,949 $ 17,868 4.9 % 415,108 36.5 % 1Total expected investment for the properties include the initial purchase price, buyer's due diligence and closing costs, estimated near-term redevelopment expenditures, capitalized interest and leasing costs necessary to achieve stabilization. 2Estimated stabilized cap rates are calculated as estimated annualized cash basis net operating income for the properties stabilized to market occupancy (generally 95%) divided by the total acquisition cost for the property. We define cash basis net operating income for the property as net operating income excluding straight-line rents and amortization of lease intangibles. These estimated stabilized cap rates are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control, including risks related to our ability to meet our estimated forecasts related to stabilized cap rates and those risk factors contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and in our other public filings. Disposition Activity During the nine months endedSeptember 30, 2021 , we sold one property located in theSeattle, Washington market for a sales price of approximately$10.3 million , resulting in a gain of approximately$3.2 million . The following summarizes the condensed results of operations of the properties sold during the three and nine months endedSeptember 30, 2021 and 2020 (dollars in thousands): For the Nine Months Ended September For the Three Months Ended September 30, 30, 2021 2020 2021 2020 Rental revenues $ 50 $
21 $ 279
31 10 76 34
Property operating expenses (23) (21) (91) (72)
Depreciation and amortization (17) (41) (120) (119)
Income from operations $ 41 $ (31) $ 144 $ (4)
26-------------------------------------------------------------------------------- Table of Contents ATM Program We have an at-the-market equity offering program (the "$300 Million ATM Program") pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to$300.0 million ($223.2 million remaining as ofSeptember 30, 2021 ) in amounts and at times as we determine from time to time. Prior to the implementation of the$300 Million ATM Program, we had a previous at-the-market equity program (the "Previous$300.0 million ATM Program"), which was substantially utilized as ofJune 10, 2021 and which is no longer active. We intend to use the net proceeds from the offering of the shares under the$300 Million ATM Program, if any, for general corporate purposes, which may include future acquisitions, redevelopments and repayment of indebtedness, including borrowings under our revolving credit facility. During the three and nine months endedSeptember 30, 2021 , we issued an aggregate of 751,539 and 2,542,357 shares, respectively, of common stock at a weighted average offering price of$66.51 and$63.22 per share, respectively, under the Previous$300 Million ATM and the$300 Million ATM Program, resulting in net proceeds of approximately$49.3 million and$158.4 million , respectively, and paying total compensation to the applicable sales agents of approximately$0.7 million and$2.3 million , respectively. Share Repurchase Program We have a share repurchase program authorizing us to repurchase up to 3,000,000 shares of our outstanding common stock from time to time throughDecember 31, 2022 . Purchases made pursuant to this program will be made in either the open market or in privately negotiated transactions as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. As ofSeptember 30, 2021 , we had not repurchased any shares of stock pursuant to our share repurchase program. Senior Unsecured Notes OnJuly 15, 2021 , we issued in a private placement (i)$100.0 million of senior guaranteed green notes (the "Series A Notes") and (ii)$50.0 million of senior guaranteed notes (the "Series B Notes"). The Series A Notes bear interest at a fixed annual interest rate of 2.41% and mature inJuly 2028 , and the Series B Notes bear interest at a fixed annual interest rate of 2.84% and mature inJuly 2031 . OnOctober 28, 2021 , we issued$125.0 million of senior guaranteed notes (the "2.38% Notes") in a private placement pursuant to a note purchase agreement entered into onAugust 17, 2021 with certain institutional investors. The 2.38% Notes bear interest at a fixed rate of 2.38% and mature inAugust 2030 . The 2.38% Notes and, together with the Series A Notes and the Series B Notes, the "Notes", are guaranteed by us and by substantially all of the current and to-be-formed subsidiaries of the borrower that own an unencumbered property. The Notes are not secured by our properties or by interests in the subsidiaries that hold such properties. The Notes include a series of financial and other covenants with which we must comply. Dividend and Distribution Activity OnNovember 2, 2021 , our board of directors declared a cash dividend in the amount of$0.34 per share of our common stock payable onJanuary 5, 2022 to the stockholders of record as of the close of business onDecember 15, 2021 . Contractual Commitments As ofNovember 2, 2021 , we have outstanding contracts with third-party sellers to acquire five industrial properties for a total aggregate purchase price of$94.2 million , as described under the heading "Contractual Obligations" in this Quarterly Report on Form 10-Q. There is no assurance that we will acquire the properties under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions. Financial Condition and Results of Operations We derive substantially all of our revenues from rents received from tenants under existing leases on each of our properties. These revenues include fixed base rents and recoveries of certain property operating expenses that we have incurred and that we pass through to the individual tenants. Approximately 95.2% of our leased space includes fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years. Our primary cash expenses consist of our property operating expenses, which include: real estate taxes, repairs and maintenance, management expenses, insurance, utilities, general and administrative expenses, which include compensation costs, office expenses, professional fees and other administrative expenses, acquisition costs, which include third-party costs 27 -------------------------------------------------------------------------------- Table of Contents paid to brokers and consultants, and interest expense, primarily on our mortgage loan, revolving credit facility, term loans and senior unsecured notes. Our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions at various times during the course of such periods. The results of operations of any acquired property are included in our financial statements as of the date of its acquisition. The analysis of our results below for the three and nine months endedSeptember 30, 2021 and 2020 includes the changes attributable to same store properties. The same store pool for the comparison of the three and nine months endedSeptember 30, 2021 and 2020 includes all properties that were owned and in operation as ofSeptember 30, 2021 and sinceJanuary 1, 2020 and excludes properties that were either disposed of prior to, held for sale to a third party or in redevelopment as ofSeptember 30, 2021 . As ofSeptember 30, 2021 , the same store pool consisted of 209 buildings aggregating approximately 12.5 million square feet representing approximately 88.6% of our total square feet owned and 19 improved land parcels consisting of 79.6 acres. As ofSeptember 30, 2021 , the non-same store properties, which we acquired, redeveloped, or sold during 2020 and 2021 or were held for sale (if any) or in redevelopment as ofSeptember 30, 2021 , consisted of 32 buildings (including three buildings held for sale) aggregating approximately 1.6 million square feet, 12 improved land parcels containing approximately 35.1 acres and four properties under redevelopment expected to contain approximately 0.4 million square feet upon completion. As ofSeptember 30, 2021 and 2020, our consolidated same store pool occupancy was approximately 98.7% and 98.3%, respectively. Our future financial condition and results of operations, including rental revenues, straight-line rents and amortization of lease intangibles, may be impacted by the acquisitions of additional properties, and expenses may vary materially from historical results. 28
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Table of Contents Comparison of the Three Months EndedSeptember 30, 2021 to the Three Months EndedSeptember 30, 2020 : For the Three Months Ended September 30, 2021 2020 $ Change % Change (Dollars in thousands) Rental revenues 1 Same store$ 38,992 $ 35,238 $ 3,754 10.7 % Non-same store operating properties 2 6,651 1,826 4,825 264.2 % Total rental revenues 45,643 37,064 8,579 23.1 % Tenant expense reimbursements 1 Same store 10,413 9,766 647 6.6 % Non-same store operating properties 2 1,213 317 896 282.6 % Total tenant expense reimbursements 11,626 10,083 1,543 15.3 % Total revenues 57,269 47,147 10,122 21.5 % Property operating expenses Same store 12,213 11,659 554 4.8 % Non-same store operating properties 2 1,987 569 1,418 249.2 % Total property operating expenses 14,200 12,228 1,972 16.1 % Net operating income 3 Same store 37,192 33,345 3,847 11.5 % Non-same store operating properties 2 5,877 1,574 4,303 273.4 % Total net operating income$ 43,069 $ 34,919 $ 8,150 23.3 % Other costs and expenses Depreciation and amortization 13,636 12,124 1,512 12.5 % General and administrative 6,800 5,130 1,670 32.6 % Acquisition costs - 123 (123) (100.0) % Total other costs and expenses 20,436 17,377 3,059 17.6 % Other income (expense) Interest and other income 228 51 177 347.1 % Interest expense, including amortization (4,686) (3,887) (799) 20.6 % Gain on sales of real estate investments 3,185 9,016 (5,831) (64.7) % Total other income (expense) (1,273) 5,180 (6,453) n/a Net income$ 21,360 $ 22,722 $ (1,362) (6.0) % 1Accounting Standards Update ("ASU") No. 2018-11, Leases (Topic 842), Targeted Improvements, allows us to elect not to separate lease and non-lease rental income. All rental income earned pursuant to tenant leases is reflected as one line, "Rental revenues and tenant expense reimbursements" on our accompanying consolidated statements of operations. We believe that the above presentation of rental revenues and tenant expense reimbursements is not, and is not intended to be, a presentation in accordance with GAAP, and a reconciliation to total revenue is provided above. We believe this information is frequently used by management, investors, and other interested parties to evaluate our performance. See "Note 2 - Significant Accounting Policies" in our condensed notes to consolidated financial statements for more information regarding our adoption of this standard. 2Includes 2021 and 2020 acquisitions and dispositions, twelve improved land parcels, one property held for sale with a gross book value of$23.6 million and four properties under redevelopment as ofSeptember 30, 2021 . 3Includes straight-line rents and amortization of lease intangibles. See "Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q for a definition and reconciliation of net operating income and same store net operating income from net income and a discussion of why we believe net operating income and same store net operating income are useful supplemental measures of our operating performance. 29 -------------------------------------------------------------------------------- Table of Contents Revenues. Total revenues increased approximately$10.1 million for the three months endedSeptember 30, 2021 compared to the same period from the prior year due primarily to increased revenue on new and renewed leases, property acquisitions during 2021 and 2020 and an increase in occupancy rate. Cash rents on new and renewed leases totaling approximately 0.8 million square feet commencing during the three months endedSeptember 30, 2021 increased approximately 34.9% compared to the previous rental rates for that same space. For the three months endedSeptember 30, 2021 and 2020, approximately$1.5 million and$1.1 million , respectively, was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants. Property operating expenses. Total property operating expenses increased approximately$2.0 million during the three months endedSeptember 30, 2021 compared to the same period from the prior year. The increase in total property operating expenses was primarily due to an increase of approximately$1.4 million attributable to property acquisitions during 2021 and 2020 as well as increases in real estate taxes related to annual rate increases at certain of our properties. Depreciation and amortization. Depreciation and amortization increased approximately$1.5 million during the three months endedSeptember 30, 2021 compared to the same period from the prior year primarily due to property acquisitions during 2021 and 2020. General and administrative expenses. General and administrative expenses increased approximately$1.7 million primarily due to increased restricted stock amortization and other compensation expenses due to an increase in the number of employees for the three months endedSeptember 30, 2021 compared to the same period from the prior year. Interest and other income. Interest and other income remained consistent for the three months endedSeptember 30, 2021 compared to the same period from the prior year. Interest expense, including amortization. Interest expense increased approximately$0.8 million for the three months endedSeptember 30, 2021 compared to the same period from the prior year primarily due to the issuance of approximately$150.0 million of senior unsecured notes onJuly 15, 2021 and reduced capitalized interest of approximately$0.3 million , partially offset by the repayment of a mortgage loan payable in the amount of approximately$11.3 million . Gain on sales of real estate investments. Gain on sales of real estate investments decreased approximately$5.8 million for the three months endedSeptember 30, 2021 compared to the same period from the prior year. We recognized a gain of approximately$3.2 million from the sale of one property during the three months endedSeptember 30, 2021 , as compared to a recognized gain of approximately$9.0 million from the sale of one property in the same period from the prior year. 30 -------------------------------------------------------------------------------- Table of Contents Comparison of the Nine Months EndedSeptember 30, 2021 to the Nine Months EndedSeptember 30, 2020 : For the Nine Months Ended September 30, 2021 2020 $ Change % Change (Dollars in thousands) Rental revenues 1 Same store$ 113,667 $ 102,639 $ 11,028 10.7 % Non-same store operating properties 2 14,220 6,166 8,054 130.6 % Total rental revenues 127,887 108,805 19,082 17.5 % Tenant expense reimbursements 1 Same store 30,422 27,914 2,508 9.0 % Non-same store operating properties 2 2,946 1,286 1,660 129.1 % Total tenant expense reimbursements 33,368 29,200 4,168 14.3 % Total revenues 161,255 138,005 23,250 16.8 % Property operating expenses Same store 36,179 33,962 2,217 6.5 % Non-same store operating properties 2 4,704 2,108 2,596 123.1 % Total property operating expenses 40,883 36,070 4,813 13.3 % Net operating income 3 Same store 107,910 96,591 11,319 11.7 % Non-same store operating properties 2 12,462 5,344 7,118 133.2 % Total net operating income$ 120,372 $ 101,935 $ 18,437 18.1 % Other costs and expenses Depreciation and amortization 36,980 34,683 2,297 6.6 % General and administrative 19,248 16,553 2,695 16.3 % Acquisition costs 172 186 (14) (7.5) % Total other costs and expenses 56,400 51,422 4,978 9.7 % Other income (expense) Interest and other income 685 805 (120) (14.9) % Interest expense, including amortization (12,847) (11,802) (1,045) 8.9 % Gain on sales of real estate investments 3,185 26,766 (23,581) (88.1) % Total other income (expense) (8,977) 15,769 (24,746) n/a Net income$ 54,995 $ 66,282 $ (11,287) (17.0) % 1ASU No. 2018-11, Leases (Topic 842), Targeted Improvements allows us to elect not to separate lease and non-lease rental income. All rental income earned pursuant to tenant leases is reflected as one line, "Rental revenues and tenant expense reimbursements" on our accompanying consolidated statements of operations. We believe that the above presentation of rental revenues and tenant expense reimbursements is not, and is not intended to be, a presentation in accordance with GAAP. We believe this information is frequently used by management, investors, and other interested parties to evaluate our performance. See "Note 2 - Significant Accounting Policies" in our condensed notes to consolidated financial statements for more information regarding our adoption of this standard. 2Includes 2020 and 2021 acquisitions and dispositions, twelve improved land parcels, one property held for sale with a gross book value of$23.6 million and four properties under redevelopment as ofSeptember 30, 2021 . 3Includes straight-line rents and amortization of lease intangibles. See "Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q for a definition and reconciliation of net operating income and same store net operating income from net income and a discussion of why we believe net operating income and same store net operating income are useful supplemental measures of our operating performance. 31 -------------------------------------------------------------------------------- Table of Contents Revenues. Total revenues increased approximately$23.3 million for the nine months endedSeptember 30, 2021 compared to the same period from the prior year due primarily to increased revenue on new and renewed leases, property acquisitions during 2021 and 2020 and an increase in occupancy rate. Cash rents on new and renewed leases totaling approximately 1.9 million square feet commencing during the nine months endedSeptember 30, 2021 increased approximately 26.8% compared to the same period from the prior year. For the nine months endedSeptember 30, 2021 and 2020, approximately$3.7 million and$3.0 million , respectively, was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants. Property operating expenses. Total property operating expenses increased approximately$4.8 million during the nine months endedSeptember 30, 2021 compared to the same period from the prior year. The increase in total property operating expenses was primarily due to an increase of approximately$2.6 million attributable to property acquisitions during 2021 and 2020 as well as increases in real estate taxes related to annual rate increases at certain of our properties. Depreciation and amortization. Depreciation and amortization increased approximately$2.3 million during the nine months endedSeptember 30, 2021 compared to the same period from the prior year primarily due to property acquisitions during 2020 and 2021. General and administrative expenses. General and administrative expenses increased approximately$2.7 million for the nine months endedSeptember 30, 2021 primarily due to increased restricted stock amortization and other compensation expenses due to an increase in the number of employees compared to the same period from the prior year. Interest and other income. Interest and other income decreased approximately$0.1 million for the nine months endedSeptember 30, 2021 compared to the same period from the prior year primarily due to the pay down of our outstanding senior secured loan balance. Interest expense, including amortization. Interest expense increased approximately$1.0 million for the nine months endedSeptember 30, 2021 compared to the same period from the prior year. This increase is primarily due to the issuance of approximately$150.0 million of senior unsecured notes onJuly 15, 2021 and reduced capitalized interest of approximately$1.2 million , partially offset by the repayment of a$32.7 million mortgage loan in 2020 and a$11.3 million mortgage loan in 2021. Gain on sales of real estate investments. Gain on sales of real estate investments decreased approximately$23.6 million for the nine months endedSeptember 30, 2021 compared to the same period from the prior year. We sold one property during the nine months endedSeptember 30, 2021 and sold four properties in the same period from the prior year. Liquidity and Capital Resources The primary objective of our financing strategy is to maintain financial flexibility with a conservative capital structure using retained cash flows, proceeds from dispositions of properties, long-term debt and the issuance of common and perpetual preferred stock to finance our growth. Over the long-term, we intend to: •limit the sum of the outstanding principal amount of our consolidated indebtedness and the liquidation preference of any outstanding perpetual preferred stock to less than 35% of our total enterprise value; •maintain a fixed charge coverage ratio in excess of 2.0x; •maintain a debt-to-adjusted EBITDA ratio below 6.0x; •limit the principal amount of our outstanding floating rate debt to less than 20% of our total consolidated indebtedness; and •have staggered debt maturities that are aligned to our expected average lease term (5-7 years), positioning us to re-price parts of our capital structure as our rental rates change with market conditions. 32 -------------------------------------------------------------------------------- Table of Contents We intend to preserve a flexible capital structure with a long-term goal to maintain our investment grade rating and be in a position to issue additional unsecured debt and perpetual preferred stock. Fitch Ratings assigned us an issuer rating of BBB with a stable outlook. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. There can be no assurance that we will be able to maintain our current credit rating. Our credit rating can affect the amount and type of capital we can access, as well as the terms of any financings we may obtain. In the event our current credit rating is downgraded, it may become difficult or expensive to obtain additional financing or refinance existing obligations and commitments. We intend to primarily utilize senior unsecured notes, term loans, credit facilities, dispositions of properties, common stock and perpetual preferred stock. We may also assume debt in connection with property acquisitions which may have a higher loan-to-value. We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our revolving credit facility. We believe that our net cash provided by operations will be adequate to fund operating requirements, pay interest on any borrowings and fund distributions in accordance with the REIT requirements of the federal income tax laws. In the near-term, we intend to fund future investments in properties with cash on hand, term loans, senior unsecured notes, mortgages, borrowings under our revolving credit facility, perpetual preferred and common stock issuances and, from time to time, property dispositions. We expect to meet our long-term liquidity requirements, including with respect to other investments in industrial properties, property acquisitions, property redevelopments, renovations and expansions and scheduled debt maturities, through borrowings under our revolving credit facility, periodic issuances of common stock, perpetual preferred stock, and long-term unsecured and secured debt, and, from time to time, with proceeds from the disposition of properties. The success of our acquisition strategy may depend, in part, on our ability to obtain and borrow under our revolving credit facility and to access additional capital through issuances of equity and debt securities. The following sets forth certain information regarding our current at-the-market common stock offering program as ofSeptember 30, 2021 : Maximum Aggregate Offering Price (in Aggregate Common Stock ATM Stock Offering Program Date Implemented thousands) Available (in
thousands)
$300 Million ATM Program June 11, 2021 $ 300,000 $ 223,190 The table below sets forth the activity under our at-the-market common stock offering programs during the three and nine months endedSeptember 30, 2021 and 2020, respectively (in thousands, except share and price per share data): For the Three Months Ended September Weighted Average Net Proceeds (in Sales Commissions 30, Shares Sold Price Per Share thousands) (in thousands) September 30, 2021 751,539 $ 66.51 $ 49,259 $ 725 September 30, 2020 8,250 $ 59.92 $ 487 $ 7 For the Nine Months Ended September Weighted Average Net Proceeds (in Sales Commissions 30, Shares Sold Price Per Share thousands) (in thousands) September 30, 2021 2,542,357 $ 63.22 $ 158,396 $ 2,331 September 30, 2020 1,054,577 $ 53.09 $ 55,175 $ 812 33
-------------------------------------------------------------------------------- Table of Contents OnJuly 15, 2021 , we issued in a private placement (i)$100.0 million of senior guaranteed green notes (the "Series A Notes") and (ii)$50.0 million of senior guaranteed notes (the "Series B Notes"). The Series A Notes bear interest at a fixed annual interest rate of 2.41% and mature inJuly 2028 , and the Series B Notes bear interest at a fixed annual interest rate of 2.84% and mature inJuly 2031 . OnOctober 28, 2021 , we issued$125.0 million of senior guaranteed notes (the "2.38% Notes") in a private placement pursuant to a note purchase agreement entered into onAugust 17, 2021 with certain institutional investors. The 2.38% Notes bear interest at a fixed rate of 2.38% and mature inAugust 2030 . The 2.38% Notes and, together with the Series A Notes and the Series B Notes, the "Notes", are guaranteed by us and by substantially all of the current and to-be-formed subsidiaries of the borrower that own an unencumbered property. The Notes are not secured by our properties or by interests in the subsidiaries that hold such properties. The Notes include a series of financial and other covenants with which we must comply. As ofSeptember 30, 2021 , we had$50.0 million of senior unsecured notes that mature inSeptember 2022 ,$100.0 million of senior unsecured notes that mature inJuly 2024 ,$50.0 million of senior unsecured notes that mature inJuly 2026 ,$50.0 million of senior unsecured notes that mature inOctober 2027 ,$100.0 million of senior unsecured notes that mature inJuly 2028 ,$100.0 million of senior unsecured notes that mature inDecember 2029 and$50.0 million of senior unsecured notes that mature inJuly 2031 , (collectively, and with the 2.38% Notes, the "Senior Unsecured Notes"). OnAugust 20, 2021 , our subsidiary entered into a Sixth Amended and Restated Senior Credit Agreement (the "Amended Facility") which consists of a$250.0 million revolving credit facility that matures inAugust 2025 (previouslyOctober 2022 ) and a$100.0 million term loan that matures inJanuary 2027 (previouslyJanuary 2022 ). Among other things, the Amended Facility extended the maturity date of the revolving credit facility and the$100.0 million term loan. As of bothSeptember 30, 2021 andDecember 31, 2020 , there were no borrowings outstanding on our revolving credit facility and$100.0 million of borrowings outstanding on our term loan. The aggregate amount of the Amended Facility may be increased to a total of up to$650.0 million , subject to the approval of the administrative agent and the identification of lenders willing to make available additional amounts. Outstanding borrowings under the Amended Facility are limited to the lesser of (i) the sum of the$100.0 million term loan and the$250.0 million revolving credit facility, or (ii) 60.0% of the value of the unencumbered properties. Interest on the Amended Facility, including the term loan is generally to be paid based upon, at our option, either (i) LIBOR plus the applicable LIBOR margin or (ii) the applicable base rate which is the greatest of the administrative agent's prime rate, 0.50% above the federal funds effective rate, or thirty-day LIBOR plus the applicable LIBOR margin for LIBOR rate loans under the Amended Facility plus 1.25%. The applicable LIBOR margin will range from 1.00% to 1.45% (1.00% as ofSeptember 30, 2021 ) for the revolving credit facility (previously 1.05% to 1.50%) and 1.15% to 1.65% (1.15% as ofSeptember 30, 2021 ) for the$100.0 million term loan (previously 1.20% to 1.70%), depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value. The Amended Facility requires quarterly payments of an annual facility fee in an amount ranging from 0.15% to 0.30%, depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value. The Amended Facility and the Senior Unsecured Notes are guaranteed by us and by substantially all of the current and to-be-formed subsidiaries of the borrower that own an unencumbered property. The Amended Facility and the Senior Unsecured Notes are not secured by our properties or by interests in the subsidiaries that hold such properties. The Amended Facility and the Senior Unsecured Notes include a series of financial and other covenants with which we must comply. We were in compliance with the covenants under the Amended Facility and the Senior Unsecured Notes as ofSeptember 30, 2021 andDecember 31, 2020 . As ofSeptember 30, 2021 andDecember 31, 2020 , we had an outstanding mortgage loan payable, net of deferred financing costs, of approximately$0 and$11.3 million , respectively, and held cash and cash equivalents totaling approximately$68.7 million and$107.2 million , respectively. The mortgage loan payable was fully repaid inJanuary 2021 . The following tables summarize our debt maturities and principal payments and market capitalization, capitalization ratios, Adjusted EBITDA, interest coverage, fixed charge coverage and debt ratios as of and for the nine months endedSeptember 30, 2021 and 2020 (dollars in thousands, except per share data): Senior Credit Unsecured Facility Term Loan Notes Total Debt 2021 (3 months) $ - $ - $ - $ - 2022 - - 50,000 50,000 2023 - - - - 2024 - - 100,000 100,000 2025 - - - - Thereafter - 100,000 350,000 450,000 Total Debt - 100,000 500,000 600,000 Deferred financing costs, net - (530) (2,847) (3,377) Total Debt, net $ - $ 99,470 $ 497,153 $ 596,623 Weighted average interest rate n/a 1.3% 3.4% 3.1% As of September As of September 30, 2021 30, 2020
Total Debt, net$ 596,623 $ 459,083 Equity Common Stock Shares Outstanding 1 71,291,250 68,372,568 Market Price 2$ 63.23 $ 54.76 Total Equity 4,507,746 3,744,082 Total Market Capitalization$ 5,104,369 $ 4,203,165 Total Debt-to-Total Investments in Properties 3 22.8 % 21.1 % Total Debt-to-Total Market Capitalization 4 11.7 % 10.9 % Floating Rate Debt as a % of Total Debt 5 16.7 % 21.7 % Unhedged Floating Rate Debt as a % of Total Debt 6 16.7 % 10.9 % Mortgage Loans Payable as a % of Total Debt 7 - % 2.5 %
Mortgage Loans Payable as a % of Total Investments in Properties 8
- % 0.5 %
Adjusted EBITDA 9 $ 108,816 $ 92,540
Interest Coverage 10 8.5 x 7.8 x
Fixed Charge Coverage 11 8.3 x 7.0 x
Total Debt-to-Adjusted EBITDA 12 3.8 x 3.6 x
Weighted Average Maturity of Total Debt (years) 5.6 4.7
1Includes 288,548 and 203,729 shares of unvested restricted stock outstanding as
of September 30, 2021 and 2020, respectively. Also includes 275,727 and 139,224
shares held in the Deferred Compensation Plan as of September 30, 2021 and 2020,
respectively.
2Closing price of our shares of common stock on the New York Stock Exchange on
September 30, 2021 and 2020, respectively, in dollars per share.
3Total debt-to-total investments in properties is calculated as total debt,
including premiums and net of deferred financing costs, divided by total
investments in properties including one property held for sale with a gross book
value of $23.6 million .
4Total debt-to-total market capitalization is calculated as total debt,
including premiums and net of deferred financing costs, divided by total market
capitalization.
5Floating rate debt as a percentage of total debt is calculated as floating rate
debt, including premiums and net of deferred financing costs, divided by total
debt, including premiums and net of deferred financing costs. Floating rate debt
includes our $100.0 million variable-rate term loan borrowings, of which $50.0
million was subject to an interest rate cap of 4.0% plus 1.20% to 1.70%,
depending on leverage as of December 31, 2020 . See "Note 9 - Derivative
Financial Instruments" in our condensed notes to consolidated financial
statements for more information regarding our interest rate caps.
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6Unhedged floating rate debt as a percentage of total debt is calculated as
unhedged floating rate debt, including premiums and net of deferred financing
costs, divided by total debt, including premiums and net of deferred financing
costs. Hedged debt includes our $100.0 million variable-rate term loan
borrowings, of which $50.0 million was subject to an interest rate cap of 4.0%
plus 1.20% to 1.70%, depending on leverage as of December 31, 2020 . See "Note 9
- Derivative Financial Instruments" in our condensed notes to consolidated
financial statements for more information regarding our interest rate caps.
7Mortgage loans payable as a percentage of total debt is calculated as mortgage
loans payable, including premiums and net of deferred financing costs, divided
by total debt, including premiums and net of deferred financing costs.
8Mortgage loans payable as a percentage of total investments in properties is
calculated as mortgage loans payable, including premiums and net of deferred
financing costs, divided by total investments in properties, including one
property held for sale with a gross book value of $23.6 million .
9Earnings before interest, taxes, gains (losses) from sales of property,
depreciation and amortization, acquisition costs and stock-based compensation
("Adjusted EBITDA") for the nine months ended September 30, 2021 and 2020,
respectively. See "Non-GAAP Financial Measures" in this Quarterly Report on Form
10-Q for a definition and reconciliation of Adjusted EBITDA from net income and
a discussion of why we believe Adjusted EBITDA is a useful supplemental measure
of our operating performance.
10Interest coverage is calculated as Adjusted EBITDA divided by interest
expense, including amortization. See "Non-GAAP Financial Measures" in this
Quarterly Report on Form 10-Q for a definition and reconciliation of Adjusted
EBITDA from net income and a discussion of why we believe Adjusted EBITDA is a
useful supplemental measure of our operating performance.
11Fixed charge coverage is calculated as Adjusted EBITDA divided by interest
expense, including amortization plus capitalized interest. See "Non-GAAP
Financial Measures" in this Quarterly Report on Form 10-Q for a definition and
reconciliation of Adjusted EBITDA from net income and a discussion of why we
believe Adjusted EBITDA is a useful supplemental measure of our operating
performance.
12Total debt-to-Adjusted EBITDA is calculated as total debt, including premiums
and net of deferred financing costs, divided by annualized Adjusted EBITDA. See
"Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q for a
definition and reconciliation of Adjusted EBITDA from net income and a
discussion of why we believe Adjusted EBITDA is a useful supplemental measure of
our operating performance.
The following table sets forth the cash dividends paid or payable per share
during the nine months ended September 30, 2021 :
Dividend per
For the Three Months Ended Security Share Declaration Date Record Date Date Paid March 31, 2021 Common stock$ 0.29 February 9, 2021 March 26, 2021 April 9, 2021 June 30, 2021 Common stock$ 0.29 May 4, 2021 June 30, 2021 July 14, 2021 September 30, 2021 Common stock$ 0.34 August 3, 2021 October 1, 2021 October 15, 2021 Sources and Uses of Cash Our principal sources of cash are cash from operations, borrowings under loans payable, draws on our Amended Facility, common and preferred stock issuances, proceeds from property dispositions and issuances of unsecured notes. Our principal uses of cash are asset acquisitions, debt service, capital expenditures, operating costs, corporate overhead costs and common stock dividends. Cash From Operating Activities. Net cash provided by operating activities totaled approximately$98.4 million for the nine months endedSeptember 30, 2021 compared to approximately$77.4 million for the nine months endedSeptember 30, 2020 . This increase in cash provided by operating activities is primarily attributable to additional cash flows generated from the properties acquired during 2020 and 2021 and same store properties, as we acquired 20 properties during nine months endedSeptember 30, 2021 compared to five properties acquired in the same period from the prior year. Cash From Investing Activities. Net cash used in investing activities was approximately$359.9 million and net cash provided by investing activities was$8.5 million for the nine months endedSeptember 30, 2021 and 2020, respectively, which consisted primarily of cash paid for property acquisitions of approximately$325.0 million and$46.8 million , respectively, additions to capital improvements of approximately$44.5 million and$31.3 million , respectively, partially offset by net cash received for the senior secured loan of$0 and$15.9 million , respectively, and net proceeds from sales of real estate investments of approximately$9.6 million and$70.7 million , respectively. 35 -------------------------------------------------------------------------------- Table of Contents Cash From Financing Activities. Net cash provided by financing activities was approximately$227.4 million for the nine months endedSeptember 30, 2021 , which consisted primarily of approximately$152.5 million in net common stock issuance proceeds and borrowings of$150.0 million in connection with our issuance of senior unsecured notes partially offset by approximately$60.4 million in equity dividend payments and approximately$11.3 million in mortgage loan payments. Net cash used in financing activities was approximately$42.6 million for the nine months endedSeptember 30, 2020 , which consisted primarily of approximately$55.2 million in net common stock issuance proceeds, partially offset by approximately$54.9 million in equity dividend payments and approximately$33.0 million in mortgage loan payments. Critical Accounting Policies A summary of our critical accounting policies is set forth in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and in the condensed notes to consolidated financial statements in this Quarterly Report on Form 10-Q. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Contractual Obligations As ofNovember 2, 2021 , we have five outstanding contracts with third-party sellers to acquire five industrial properties for a total aggregate purchase price of$94.2 million . There is no assurance that we will acquire the properties under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions. The following table summarizes our contractual obligations due by period as ofSeptember 30, 2021 (dollars in thousands): Less than 1 More than 5 Contractual Obligations Year 1-3 Years 3-5 Years Years Total Debt$ 50,000 $ 100,000 $ 50,000 $ 400,000 $ 600,000 Debt interest payments 17,155 30,080 22,580 26,398 96,213 Operating lease commitments 411 134 - - 545 Purchase obligations 1 94,211 - - - 94,211 Total$ 161,777 $ 130,214 $ 72,580 $ 426,398 $ 790,969
1As of
As ofNovember 2, 2021 , we executed four non-binding letters of intent with third-party sellers to acquire four industrial properties for a total anticipated purchase price of approximately$175.3 million . In the normal course of its business, we enter into non-binding letters of intent to purchase properties from third parties that may obligate us to make payments or perform other obligations upon the occurrence of certain events, including the execution of a purchase and sale agreement and satisfactory completion of various due diligence matters. There can be no assurance that we will enter into purchase and sale agreements with respect to these properties or otherwise complete any such prospective purchases on the terms described or at all. Non-GAAP Financial Measures We use the following non-GAAP financial measures that we believe are useful to investors as key supplemental measures of our operating performance: funds from operations, or FFO, Adjusted EBITDA, net operating income, or NOI, same store NOI and cash-basis same store NOI. FFO, Adjusted EBITDA, NOI, same store NOI and cash-basis same store NOI should not be considered in isolation or as a substitute for measures of performance in accordance with GAAP. Further, our computation of FFO, Adjusted EBITDA, NOI, same store NOI and cash-basis same store NOI may not be comparable to FFO, Adjusted EBITDA, NOI, same store NOI and cash-basis same store NOI reported by other companies. We compute FFO in accordance with standards established by theNational Association of Real Estate Investment Trusts ("Nareit"), which defines FFO as net income (loss) (determined in accordance with GAAP), excluding gains (losses) from sales 36 -------------------------------------------------------------------------------- Table of Contents of property and impairment write-downs of depreciable real estate, plus depreciation and amortization on real estate assets and after adjustments for unconsolidated partnerships and joint ventures (which are calculated to reflect FFO on the same basis). We believe that presenting FFO provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified non-cash items, such as real estate depreciation and amortization and gain or loss on sale of assets. We believe that FFO is a meaningful supplemental measure of our operating performance because historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, we believe that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our operating performance. The following table reflects the calculation of FFO reconciled from net income for the three and nine months endedSeptember 30, 2021 and 2020 (dollars in thousands except per share data): For the Three Months Ended September For the Nine Months Ended September 30, 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change Net income$ 21,360 $ 22,722 $ (1,362) (6.0) %$ 54,995 $ 66,282 $ (11,287) (17.0) % Gain on sales of real estate investments (3,185) (9,016) 5,831 (64.7) % (3,185) (26,766) 23,581 (88.1) % Depreciation and amortization 13,636 12,124 1,512 12.5 % 36,980 34,683 2,297 6.6 % Non-real estate depreciation (22) (13) (9) 69.2 % (52) (59) 7 (11.9) % Allocation to participating securities 1 (126) (125) (1) 0.8 % (302) (438) 136 (31.1) % Funds from operations attributable to common stockholders 2$ 31,663 $ 25,692 $ 5,971 23.2 %$ 88,436 $ 73,702 $ 14,734 20.0 %
Basic FFO per common share
18.4 % 1.27 $ 1.09 $ 0.18 16.5 %
Diluted FFO per common share
18.4 % 1.27 $ 1.09 $ 0.18 16.5 %
Weighted average basic common
shares 70,516,787 68,112,661 69,571,511 67,600,957
Weighted average diluted
common shares 70,752,863 68,372,515 69,799,206 67,860,811
1To be consistent with our policies of determining whether instruments granted
in share-based payment transactions are participating securities and accounting
for earnings per share, the FFO per common share is adjusted for FFO distributed
through declared dividends (if any) and allocated to all participating
securities (weighted average common shares outstanding and unvested restricted
shares outstanding) under the two-class method. Under this method, allocations
were made to 262,512 and 291,893 of weighted average unvested restricted shares
outstanding for the three months ended September 30, 2021 and 2020,
respectively, and 230,280 and 387,990 of weighted average unvested restricted
shares outstanding for the nine months ended September 30, 2021 and 2020,
respectively.
2Includes performance share award expense of approximately $1.3 million for both
the three months ended September 30, 2021 and 2020 and approximately $3.8
million for both the nine months ended September 30, 2021 and 2020. See "Note 11
- Stockholders' Equity" in the condensed notes to consolidated financial
statements for more information regarding our performance share awards.
FFO increased by approximately $6.0 million and $14.7 million for the three and
nine months ended September 30, 2021 , respectively, compared to the same periods
from the prior year due primarily to same store NOI growth of approximately $3.8
million and $11.3 million for the three and nine months ended September 30,
2021 , respectively, compared to the same periods from the prior year as well as
property acquisitions during 2020 and 2021.
We compute Adjusted EBITDA as earnings before interest, taxes, depreciation and
amortization, gain on sales of real estate investments, acquisition costs and
stock-based compensation. We believe that presenting Adjusted EBITDA provides
useful information to investors regarding our operating performance because it
is a measure of our operations on an unleveraged basis before the effects of
tax, gain (loss) on sales of real estate investments, non-cash depreciation and
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amortization expense, acquisition costs and stock-based compensation. By
excluding interest expense, Adjusted EBITDA allows investors to measure our
operating performance independent of our capital structure and indebtedness and,
therefore, allows for more meaningful comparison of our operating performance
between quarters and other interim periods as well as annual periods and for the
comparison of our operating performance to that of other companies, both in the
real estate industry and in other industries. As we are currently in a growth
phase, acquisition costs are excluded from Adjusted EBITDA to allow for the
comparison of our operating performance to that of stabilized companies.
The following table reflects the calculation of Adjusted EBITDA reconciled from
net income for the three and nine months ended September 30, 2021 and 2020
(dollars in thousands):
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 $ Change % Change 2021 2020 $ Change % Change
Net income $ 21,360 $ 22,722 $ (1,362) (6.0) % $ 54,995 $ 66,282 $ (11,287) (17.0) %
Gain on sales of real estate
investments (3,185) (9,016) 5,831 (64.7) % (3,185) (26,766) 23,581 (88.1) %
Depreciation and amortization 13,636 12,124 1,512 12.5 % 36,980 34,683 2,297 6.6 %
Interest expense, including
amortization 4,686 3,887 799 20.6 % 12,847 11,802 1,045 8.9 %
Stock-based compensation 2,360 1,859 501 26.9 % 7,007 6,353 654 10.3 %
Acquisition costs - 123 (123) n/a 172 186 (14) (7.5) %
Adjusted EBITDA $ 38,857 $ 31,699 $ 7,158 22.6 % $ 108,816 $ 92,540 $ 16,276 17.6 %
We compute NOI as rental revenues, including tenant expense reimbursements, less
property operating expenses. We compute same store NOI as rental revenues,
including tenant expense reimbursements, less property operating expenses on a
same store basis. NOI excludes depreciation, amortization, general and
administrative expenses, acquisition costs and interest expense, including
amortization. We compute cash-basis same store NOI as same store NOI excluding
straight-line rents and amortization of lease intangibles. The same store pool
includes all properties that were owned and in operation as of September 30,
2021 and since January 1, 2020 and excludes properties that were either disposed
of prior to, held for sale to a third party or in redevelopment as of
September 30, 2021 . As of September 30, 2021 , the same store pool consisted of
209 buildings aggregating approximately 12.5 million square feet representing
approximately 88.6% of our total square feet owned and 19 improved land parcels
containing approximately 79.6 acres. We believe that presenting NOI, same store
NOI and cash-basis same store NOI provides useful information to investors
regarding the operating performance of our properties because NOI excludes
certain items that are not considered to be controllable in connection with the
management of the properties, such as depreciation, amortization, general and
administrative expenses, acquisition costs and interest expense. By presenting
same store NOI and cash-basis same store NOI, the operating results on a same
store basis are directly comparable from period to period.
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The following table reflects the calculation of NOI, same store NOI and
cash-basis same store NOI reconciled from net income for the three and nine
months ended
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 $ Change % Change 2021 2020 $ Change % Change
Net income 1 $ 21,360 $ 22,722 $ (1,362) (6.0) % $ 54,995 $ 66,282 $ (11,287) (17.0) %
Depreciation and amortization 13,636 12,124 1,512 12.5 % 36,980 34,683 2,297 6.6 %
General and administrative 6,800 5,130 1,670 32.6 % 19,248 16,553 2,695 16.3 %
Acquisition costs - 123 (123) n/a 172 186 (14) (7.5) %
Total other income and
expenses 1,273 (5,180) 6,453 n/a 8,977 (15,769) 24,746 n/a
Net operating income 43,069 34,919 8,150 23.3 % 120,372 101,935 18,437 18.1 %
Less non-same store NOI 2 (5,877) (1,574) (4,303) 273.4 % (12,462) (5,344) (7,118) 133.2 %
Same store NOI $ 37,192 $ 33,345 $ 3,847 11.5 % $ 107,910 $ 96,591 $ 11,319 11.7 %
Less straight-line rents and
amortization of lease
intangibles 3 (2,435) 1,412 (3,847) n/a (7,633) (2,167) (5,466) 252.2 %
Cash-basis same store NOI
- % $ 100,277 $ 94,424 $ 5,853 6.2 %
Less termination fee income (15) (3,483) 3,468 (99.6) % (162) (3,642) 3,480 (95.6) %
Cash-basis same store NOI
excluding termination fees
11.1 % $ 100,115 $ 90,782 $ 9,333 10.3 %
1Includes approximately $0.7 million and $3.5 million of lease termination
income for the three months ended September 30, 2021 and 2020, respectively, and
approximately $0.8 million and $3.7 million of lease termination income for the
nine months ended September 30, 2021 and 2020, respectively.
2Includes 2020 and 2021 acquisitions and dispositions, twelve improved land
parcels, one property held for sale with a gross book value of approximately
$23.6 million and four properties under redevelopment.
3Includes straight-line rents and amortization of lease intangibles for the same
store pool only.
Cash-basis same store NOI was unchanged for the three months ended September 30,
2021 compared to the same period from the prior year primarily due to $3.5
million in lease termination income in the prior period. Excluding lease
termination income, cash-basis same store NOI increased by approximately $3.5
million due to increased rental revenue on new and renewed leases and
contractual rent increases. For the three months ended September 30, 2021 and
2020, total contractual rent abatements of approximately $0.7 million and
$0.8 million , respectively, were given to certain tenants in the same-store pool
and approximately $15,000 and $3.5 million , respectively, in lease termination
income was received from certain tenants in the same store pool. In addition,
approximately $0.5 million of the increase in cash-basis same store NOI for the
three months ended September 30, 2021 related to properties that were acquired
vacant or with near term expirations in 2019.
Cash-basis same store NOI increased by approximately $5.9 million for the nine
months ended September 30, 2021 compared to the same period from the prior year
primarily due to increased rental revenue on new and renewed leases, partially
offset by a decrease in occupancy rate. For the nine months ended September 30,
2021 and 2020, total contractual rent abatements of approximately $2.3 million
and $2.4 million , respectively, were given to certain tenants in the same-store
pool and approximately $0.2 million and $3.6 million , respectively, in lease
termination income was received from certain tenants in the same store pool. In
addition, approximately $2.1 million of the increase in cash-basis same store
NOI for the nine months ended September 30, 2021 related to properties that were
acquired vacant or with near term expirations in 2019.
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