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. 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 endedDecember 31, 2020 , which was filed with theSecurities and Exchange Commission onFebruary 10, 2021 , in our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2021 , which was filed with theSecurities and Exchange Commission onMay 5, 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; 19 -------------------------------------------------------------------------------- Table of Contents •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 theU.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. OverviewTerreno 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 coastalU.S. markets:Los Angeles ,Northern New Jersey /New York City ,San Francisco Bay Area ,Seattle ,Miami , andWashington, D.C. We invest in several types of industrial real estate, including warehouse/distribution (approximately 81.0% of our annualized base rent as ofJune 30, 2021 ), flex buildings (including light industrial and research and development, or R&D, approximately 5.1%), transshipment (approximately 5.8%), and improved land parcels (approximately 8.1%). 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 ofJune 30, 2021 , we owned a total of 234 buildings aggregating approximately 13.8 million square feet, 27 improved land parcels consisting of approximately 97.6 acres and three properties under redevelopment expected to contain approximately 0.4 million square feet upon completion. As ofJune 30, 2021 , the buildings and improved land parcels were approximately 97.5% and 98.0% leased, respectively, to 535 customers, the largest of which accounted for approximately 5.1% 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 endedDecember 31, 2020 for a general description of these types of industrial real estate. We are an internally managedMaryland 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 endedDecember 31, 2010 . 20
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The following table summarizes by type our investments in real estate as of
Number of Buildings or Annualized Base
Type Improved Land Parcels Rent (000's) 1 % of Total
Warehouse/distribution 204 $ 131,590 81.0 %
Flex 13 8,361 5.1 %
Transshipment 17 9,437 5.8 %
Improved land 27 13,087 8.1 %
Total 261 $ 162,475 100.0 %
1Annualized base rent is calculated as contractual monthly base rent per the
leases, excluding any partial or full rent abatements, as of
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The following table summarizes by market our investments in real estate as of
June 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 44 63 44 37 28 18 234
Rentable Square Feet 2,602,055 3,570,180 2,155,833 2,343,514 1,587,649 1,534,625 13,793,856
% of Total 18.9 % 25.9 % 15.6 % 17.0 % 11.5 % 11.1 % 100.0 %
Occupancy % as of June 30, 2021 98.4 % 97.0 % 97.2 % 99.0 % 94.8 % 97.9 % 97.5 %
Annualized Base Rent
(000's) 1 $ 25,468 $ 40,855 $
28,314
17.1 % 27.3 % 19.0 % 15.6 % 9.4 % 11.6 % 100.0 %
Annualized Base Rent 1 Per Occupied
Square Foot $ 9.94 $ 11.80 $
13.51
6.4 4.9 3.4 3.8 4.0 3.4 4.5
Investments in Improved Land
Number of Land Parcels 8 9 3 4 2 1 27
Acres 16.4 48.8 7.1 8.8 3.2 13.3 97.6
% of Total 16.8 % 50.0 % 7.3 % 9.0 % 3.3 % 13.6 % 100.0 %
Occupancy % as of June 30, 2021 88.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 98.0 %
Annualized Base Rent
(000's) 1 $ 3,322 $ 5,991 $ 1,405 $ 1,106 $ 396 $ 868 $ 13,088
% of Total 25.4 % 45.8 % 10.7 % 8.5 % 3.0 % 6.6 % 100.0 %
Annualized Base Rent 1 Per Occupied
Square Foot $ 5.28 $ 2.88 $
4.56
4.0 6.6 2.0 4.0 2.3 8.5 5.9
Total Investments in Real Estate
Annualized Base Rent (000's) 1 $ 28,790 $ 46,846 $ 29,719 $ 24,474 $ 14,401 $ 18,245 $ 162,475
Gross Book Value (000's) 3 $ 472,922 $ 668,383 $ 419,264 $ 432,660 $ 215,554 $ 217,668 $ 2,426,451
% of Total Gross Book 19.5 % 27.5 % 17.3 % 17.8 % 8.9 % 9.0 % 100.0 %
1Annualized base rent is calculated as contractual monthly base rent per the
leases, excluding any partial or full rent abatements, as of June 30, 2021 ,
multiplied by 12.
2Weighted average remaining lease term is calculated by summing the remaining
lease term of each lease as of June 30, 2021 , weighted by the respective square
footage.
3Includes three properties under redevelopment expected to contain approximately
0.4 million square feet upon completion, as discussed below.
As of June 30, 2021 , we owned three properties under redevelopment expected to
contain approximately 0.4 million square feet upon completion with a total
expected investment of approximately $91.6 million , including redevelopment
costs, capitalized interest and other costs.
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The following table summarizes our capital expenditures incurred during the
three and six months ended
For the Three Months Ended June 30 ,
For the Six Months Ended
2021 2020 2021 2020
Building improvements $ 9,940 $ 4,264 $ 11,694 $ 7,594
Tenant improvements 2,499 763 3,420 1,028
Leasing commissions 4,985 1,484 7,727 4,426
Redevelopment, renovation and expansion 5,311 2,363 5,883 3,577
Total capital expenditures 1 $ 22,735 $ 8,874 1Includes approximately$13.8 million and$4.5 million for the three months endedJune 30, 2021 and 2020, respectively, and approximately$15.0 million and$8.9 million for the six months endedJune 30, 2021 and 2020, respectively, related to leasing acquired vacancy, redevelopment construction in progress and renovation and expansion projects (stabilization capital) at 14 and 13 properties for the three months endedJune 30, 2021 and 2020, respectively, and at 14 and 13 properties for the six months endedJune 30, 2021 and 2020, respectively. Our industrial properties are typically subject to leases on a "triple net basis," in which tenants pay their proportionate share of real estate taxes, insurance and operating costs, or are subject to leases on a "modified gross basis," in which tenants pay expenses over certain threshold levels. In addition, approximately 93.1% of our leased space includes fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years. We monitor the liquidity and creditworthiness of our tenants on an on-going basis by reviewing outstanding accounts receivable balances, and as provided under the respective lease agreements, review the tenant's financial condition periodically as appropriate. As needed, we hold discussions with the tenant's management about their business and we conduct site visits of the tenant's operations. Our top 20 customers based on annualized base rent as ofJune 30, 2021 are as follows: % of Total Annualized % of Total Rentable Rentable Base Rent Annualized Customer Leases Square Feet Square Feet (000's) 1 Base Rent 1 Amazon.com 2 5 471,880 3.4 %$ 8,208 5.1 % 2 FedEx Corporation 3 7 314,519 2.3 % 5,178 3.2 % 3 Danaher 3 171,707 1.2 % 3,844 2.4 % 4 United States Government 8 300,732 2.2 % 3,757 2.3 % 5 District of Columbia 7 234,071 1.7 % 3,342 2.1 % 6 DirectBuy Home Improvement 1 230,891 1.7 % 1,915 1.2 % 7 Costco-Innovel Solutions LLC 1 219,910 1.6 % 1,816 1.1 % 8 Port Kearny Security, Inc. 4 1 - - % 1,800 1.1 % 9 XPO Logistics 2 180,717 1.3 % 1,764 1.1 % 10 L3 Harris Technologies, Inc. 1 147,898 1.1 % 1,700 1.0 % 11 O'Neill Logistics 2 237,692 1.7 % 1,576 1.0 % 12 Bar Logistics 1 203,263 1.5 % 1,546 1.0 % 13 Topaz Lighting Corp. 1 190,000 1.4 % 1,507 0.9 % 14 YRC 2 61,252 0.4 % 1,441 0.9 % 15 United States Postal Service 2 81,950 0.6 % 1,438 0.9 % 16 KTL Logistics LLC 1 40,000 0.3 % 1,431 0.9 % 17 Envogue International 1 192,000 1.4 % 1,411 0.9 % 18 Lilac Solutions Inc. 1 92,884 0.7 % 1,378 0.8 % 19Saia Motor Freight Line LLC 1 52,086 0.4 % 1,315 0.7 % 20 Northrop Grumman Systems Corporation 1 103,200 0.7 % 1,300 0.7 % Total 49 3,526,652 25.6 %$ 47,667 29.3 %
1Annualized base rent is calculated as contractual monthly base rent per the
leases, excluding any partial or full rent abatements, as of
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Table of Contents 2Includes an improved land parcel consisting of approximately 2.8 acres. 3Includes an improved land parcel 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 ofJune 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 (000's) 2, 3 Base Rent 2021 (6 months) 1 762,659 5.5 % 10,583 5.7 % 2022 1,837,178 13.3 % 20,845 11.2 % 2023 2,012,008 14.6 % 26,108 14.1 % 2024 1,768,849 12.8 % 22,127 11.9 % 2025 1,569,199 11.4 % 24,055 13.0 % Thereafter 5,494,880 39.8 % 81,869 44.1 % Total 13,444,773 97.4 % 185,587 100.0 % 1Includes leases that expire on or afterJune 30, 2021 and month-to-month leases totaling approximately 111,650 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 ofJune 30, 2021 , multiplied by 12. 3Includes annualized base rent related to 27 improved land parcels totaling approximately 97.6 acres. 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 ofJune 30, 2021 , leases representing approximately 5.7% of the total annualized base rent of our portfolio are scheduled to expire throughDecember 31, 2021 . 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 endedJune 30, 2021 were approximately 21.1% higher as compared to the previous rental rates for that same space, and rent changes on new and renewed leases totaling approximately 1.1 million square feet commencing during the six months endedJune 30, 2021 were approximately 19.7% higher as compared to the previous rental rates for that same space. We had a tenant retention ratio of 64.3% and 72.8%, respectively, for the three and six months endedJune 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. 24 -------------------------------------------------------------------------------- Table of Contents Recent Developments Acquisition Activity During the three months endedJune 30, 2021 , we acquired six industrial properties for a total purchase price of approximately$54.2 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 endedJune 30, 2021 : Number of Square Purchase Price Stabilized Property Name Location Acquisition Date Buildings Feet (in thousands) 1 Cap Rate 2 73rd Street 3 Miami, Florida April 6, 2021 - - $ 5,800 5.1 % 68th Kent Kent, Washington April 13, 2021 2 67,120 10,000 5.5 % East Gish 4 San Jose, California April 22, 2021 - - 8,004 4.8 % Gramercy Place Torrance, California May 12, 2021 1 17,407 6,290 4.7 % Occidental Avenue Seattle, Washington May 12, 2021 3 51,853 16,450 4.6 % SW 16th Street 5 Renton, Washington June 14, 2021 - - 7,615 1.5 % Total/Weighted Average 6 136,380 $ 54,159 4.4 % 1Excludes intangible liabilities and mortgage premiums, if any. The total aggregate initial investment was approximately$57.8 million , including$1.5 million in capitalized closing costs and acquisition costs and$2.1 million in assumed intangible liabilities. 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 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. 3Represents an improved land parcel containing approximately 5.8 acres, that is being redeveloped with two industrial distribution buildings expected to total approximately 129,000 square feet. 4Represents an improved land parcel containing approximately 2.2 acres. 5Represents an improved land parcel containing approximately 2.9 acres. Redevelopment Activity As ofJune 30, 2021 , we have three properties under redevelopment expected to contain approximately 0.4 million square feet upon completion with a total expected investment of approximately$91.6 million , including redevelopment costs, capitalized interest and other costs as follows: Estimated Amount Total Expected Amount Spent to Remaining to Estimated Estimated Investment (in Date (in Spend (in Stabilized Cap Estimated Post-Development Completion % Pre-leased PropertyName thousands) 1 thousands) thousands) Rate 2 Square Feet QuarterJune 30, 2021 Sodo Row - North & South$ 63,988 $ 62,412 $ 1,576 4.3 % 234,308 Q4 2021 40.5 % AmericasGateway 7,429 5,301 2,128 5.5 % 51,800 Q4 2022 - %73rd Street 20,136 9,610 10,526 5.1 % 129,000 Q4 2022 - % Total/Weighted Average$ 91,553 $ 77,323 $ 14,230 4.6 % 415,108 22.9 % 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 25 -------------------------------------------------------------------------------- Table of Contents 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 We had no disposition activity during the six months endedJune 30, 2021 . During the six months endedJune 30, 2020 , we sold three properties located in theWashington, D.C. market for a total aggregate sales price of approximately$51.3 million , resulting in a gain of approximately$17.8 million . 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 ($273.2 million remaining as ofJune 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 six months endedJune 30, 2021 , we issued an aggregate of 1,084,294 and 1,790,818 shares, respectively, of common stock at a weighted average offering price of$64.21 and$61.84 per share, respectively, under the Previous$300 Million ATM and the$300 Million ATM Program, resulting in net proceeds of approximately$68.6 million and$109.1 million , respectively, and paying total compensation to the applicable sales agents of approximately$1.0 million and$1.6 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 ofJune 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" and, together with the Series A Notes, the "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 . The Notes are guaranteed us and by substantially all of the current and to-be-formed subsidiaries of the borrower that own an unencumbered property. The Notes are unsecured 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 OnAugust 3, 2021 , our board of directors declared a cash dividend in the amount of$0.34 per share of our common stock payable onOctober 15, 2021 to the stockholders of record as of the close of business onOctober 1, 2021 . Contractual Commitments As ofAugust 3, 2021 , we have outstanding contracts with third-party sellers to acquire seven industrial properties for a total aggregate purchase price of$107.1 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 26 -------------------------------------------------------------------------------- Table of Contents 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 93.1% 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 paid to brokers and consultants, and interest expense, primarily on our mortgage loans, 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 six months endedJune 30, 2021 and 2020 includes the changes attributable to same store properties. The same store pool for the comparison of the three and six months endedJune 30, 2021 and 2020 includes all properties that were owned and in operation as ofJune 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 ofJune 30, 2021 . As ofJune 30, 2021 , the same store pool consisted of 213 buildings aggregating approximately 12.7 million square feet representing approximately 92.0% of our total square feet owned and 19 improved land parcels consisting of 79.6 acres. As ofJune 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 ofJune 30, 2021 , consisted of 21 buildings aggregating approximately 1.1 million square feet, eight improved land parcels containing approximately 18.1 acres and three properties under redevelopment expected to contain approximately 0.4 million square feet upon completion. As ofJune 30, 2021 and 2020, our consolidated same store pool occupancy was approximately 97.8% and 96.1%, 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. 27 -------------------------------------------------------------------------------- Table of Contents Comparison of the Three Months EndedJune 30, 2021 to the Three Months EndedJune 30, 2020 : For the Three Months Ended June 30, 2021 2020 $ Change % Change (Dollars in thousands) Rental revenues 1 Same store$ 38,515 $ 34,471 $ 4,044 11.7 % Non-same store operating properties 2 3,920 1,846 2,074 112.4 % Total rental revenues 42,435 36,317 6,118 16.8 % Tenant expense reimbursements 1 Same store 9,998 9,092 906 10.0 % Non-same store operating properties 2 862 333 529 158.9 % Total tenant expense reimbursements 10,860 9,425 1,435 15.2 % Total revenues 53,295 45,742 7,553 16.5 % Property operating expenses Same store 11,827 11,286 541 4.8 % Non-same store operating properties 2 1,344 648 696 107.4 % Total property operating expenses 13,171 11,934 1,237 10.4 % Net operating income 3 Same store 36,686 32,277 4,409 13.7 % Non-same store operating properties 2 3,438 1,531 1,907 124.6 % Total net operating income$ 40,124 $ 33,808 $ 6,316 18.7 % Other costs and expenses Depreciation and amortization 11,968 11,459 509 4.4 % General and administrative 6,866 5,665 1,201 21.2 % Acquisition costs 117 11 106 963.6 % Total other costs and expenses 18,951 17,135 1,816 10.6 % Other income (expense) Interest and other income 221 190 31 16.3 % Interest expense, including amortization (4,016) (3,909) (107) 2.7 % Gain on sales of real estate investments - 17,750 (17,750) (100.0) % Total other income (expense) (3,795) 14,031 (17,826) n/a Net income$ 17,378 $ 30,704 $ (13,326) (43.4) % 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, eight improved land parcels and three properties under redevelopment as ofJune 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. 28 -------------------------------------------------------------------------------- Table of Contents Revenues. Total revenues increased approximately$7.6 million for the three months endedJune 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 endedJune 30, 2021 increased approximately 21.1% compared to the previous rental rates for that same space. For the three months endedJune 30, 2021 and 2020, approximately$1.1 million and$1.3 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$1.2 million during the three months endedJune 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$0.7 million attributable to property acquisitions during 2021 and 2020. Depreciation and amortization. Depreciation and amortization increased approximately$0.5 million during the three months endedJune 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$1.2 million primarily due to higher performance share award expense of approximately$0.3 million and increased compensation expenses for the three months endedJune 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 endedJune 30, 2021 compared to the same period from the prior year. Interest expense, including amortization. Interest expense increased approximately$0.1 million for the three months endedJune 30, 2021 compared to the same period from the prior year primarily due to reduced capitalized interest of approximately$0.3 million for the three months endedJune 30, 2021 , 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$17.8 million for the three months endedJune 30, 2021 compared to the same period from the prior year. We did not sell any properties during the three months endedJune 30, 2021 and we sold three properties in the same period from the prior year. 29
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Table of Contents Comparison of the Six Months EndedJune 30, 2021 to the Six Months EndedJune 30, 2020 : For the Six Months Ended June 30, 2021 2020 $ Change % Change (Dollars in thousands) Rental revenues 1 Same store $ 75,718$ 68,306 $ 7,412 10.9 % Non-same store operating properties 2 6,526 3,435 3,091 90.0 % Total rental revenues 82,244 71,741 10,503 14.6 % Tenant expense reimbursements 1 Same store 20,336 18,418 1,918 10.4 % Non-same store operating properties 2 1,406 699 707 101.2 % Total tenant expense reimbursements 21,742 19,117 2,625 13.7 % Total revenues 103,986 90,858 13,128 14.4 % Property operating expenses Same store 24,367 22,639 1,728 7.6 % Non-same store operating properties 2 2,316 1,203 1,113 92.5 % Total property operating expenses 26,683 23,842 2,841 11.9 % Net operating income 3 Same store 71,687 64,085 7,602 11.9 % Non-same store operating properties 2 5,616 2,931 2,685 91.6 % Total net operating income $ 77,303$ 67,016 $ 10,287 15.4 % Other costs and expenses Depreciation and amortization 23,344 22,559 785 3.5 % General and administrative 12,448 11,423 1,025 9.0 % Acquisition costs 172 63 109 173.0 % Total other costs and expenses 35,964 34,045 1,919 5.6 % Other income (expense) Interest and other income 457 754 (297) (39.4) % Interest expense, including amortization (8,161) (7,915) (246) 3.1 % Gain on sales of real estate investments - 17,750 (17,750) (100.0) % Total other income (expense) (7,704) 10,589 (18,293) n/a Net income $ 33,635$ 43,560 $ (9,925) (22.8) % 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, eight improved land parcels and three properties under redevelopment as ofJune 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. Revenues. Total revenues increased approximately$13.1 million for the six months endedJune 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 1.1 million square feet commencing during the six months endedJune 30, 2021 increased approximately 19.7% compared to the same period from the prior year. For the six months endedJune 30, 2021 and 2020, approximately$2.2 million and$1.9 million , respectively, was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants. 30 -------------------------------------------------------------------------------- Table of Contents Property operating expenses. Total property operating expenses increased approximately$2.8 million during the six months endedJune 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$1.1 million attributable to property acquisitions during 2021 and 2020. Depreciation and amortization. Depreciation and amortization increased approximately$0.8 million during the six months endedJune 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$1.0 million for the six months endedJune 30, 2021 compared to the same period from the prior year, primarily due to increased compensation expenses. Interest and other income. Interest and other income decreased approximately$0.3 million for the six months endedJune 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$0.2 million for the six months endedJune 30, 2021 compared to the same period from the prior year. This increase is primarily due to reduced capitalized interest of approximately$0.9 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$17.8 million for the six months endedJune 30, 2021 compared to the same period from the prior year. We did not sell any properties during the six months endedJune 30, 2021 , and we sold three 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. 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 31 -------------------------------------------------------------------------------- Table of Contents 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 ofJune 30, 2021 : Aggregate Common Stock Maximum Aggregate Available as of three and Offering Price (in six months ended (in ATM Stock Offering Program Date Implemented thousands) thousands)$300 Million ATM Program June 11, 2021 $ 300,000 $ 273,174 The table below sets forth the activity under our at-the-market common stock offering programs during the three and six months endedJune 30, 2021 and 2020, respectively (in thousands, except share and price per share data): Weighted Average Net Proceeds (in Sales Commissions For the Three Months Ended June 30, Shares Sold Price Per Share thousands) (in thousands) June 30, 2021 1,084,294 $ 64.21 $ 68,611 $ 1,010 June 30, 2020 619,300 $ 52.81 $ 32,230 $ 474 Weighted Average Net Proceeds (in Sales Commissions For the Six Months Ended June 30, Shares Sold Price Per Share thousands) (in thousands) June 30, 2021 1,790,818 $ 61.84 $ 109,137 $ 1,606 June 30, 2020 1,046,327 $ 53.04 $ 54,688 $ 804 As ofJune 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 inDecember 2029 (collectively, the "Senior Unsecured Notes"), and a credit facility (the "Facility"), which consists of a$250.0 million unsecured revolving credit facility that matures inOctober 2022 , a$100.0 million term loan that matures inJanuary 2022 . As of bothJune 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. As ofJune 30, 2021 , we did not have any active interest rate caps. We previously had an active interest rate cap to hedge the variable cash flows associated with$50.0 million of our existing$100.0 million variable-rate term loan, which expiredMay 4, 2021 . The cap had a notional value of$50.0 million and effectively capped the annual interest rate payable at 4.0% plus 1.20% to 1.70%, depending on leverage, with respect to$50.0 million for the period fromDecember 1, 2014 (effective date) toMay 4, 2021 . Under the interest rate cap, we were required to make certain monthly variable rate payments on the term loan, while the applicable counterparty was obligated to make certain monthly floating rate payments based on LIBOR to us in the event LIBOR was greater than 4.0%, referencing the same notional amount. The aggregate amount of the Facility may be increased to a total of up to$600.0 million , subject to the approval of the administrative agent and the identification of lenders willing to make available additional amounts. Outstanding borrowings under the 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 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 Facility plus 1.25%. The applicable LIBOR margin will range from 1.05% to 1.50% (1.05% as ofJune 30, 2021 ) for the revolving credit facility and 1.20% to 1.70% (1.20% as ofJune 30, 2021 ) and the$100.0 million term loan, depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value. The 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 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 Facility and the Senior Unsecured Notes are unsecured by our properties or by interests in the subsidiaries that hold such properties. The Facility and the Senior Unsecured Notes 32 -------------------------------------------------------------------------------- Table of Contents include a series of financial and other covenants with which we must comply. We were in compliance with the covenants under the Facility and the Senior Unsecured Notes as ofJune 30, 2021 andDecember 31, 2020 . 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" and, together with the Series A Notes, the "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 . The Notes are guaranteed us and by substantially all of the current and to-be-formed subsidiaries of the borrower that own an unencumbered property. The Notes are unsecured 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 ofJune 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$40.0 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 six months endedJune 30, 2021 and 2020 (dollars in thousands, except per share data): Senior Credit Unsecured Facility Term Loan Notes Total Debt 2021 (6 months) $ - $ - $ - $ - 2022 - 100,000 50,000 150,000 2023 - - - - 2024 - - 100,000 100,000 2025 - - - - Thereafter - - 200,000 200,000 Total Debt - 100,000 350,000 450,000 Deferred financing costs, net - (104) (1,742) (1,846) Total Debt, net $ - $ 99,896 $ 348,258 $ 448,154 Weighted average interest rate n/a 1.3% 3.8% 3.3% As of June 30, As of June 30, 2021 2020 Total Debt, net$ 448,154 $ 459,044 Equity Common Stock Shares Outstanding 1 70,467,125 68,461,437 Market Price 2$ 64.52 $ 52.64 Total Equity 4,546,539 3,603,810 Total Market Capitalization$ 4,994,693 $ 4,062,854 Total Debt-to-Total Investments in Properties 3 18.5 % 21.1 % Total Debt-to-Total Market Capitalization 4 9.0 % 11.3 % Floating Rate Debt as a % of Total Debt 5 22.3 % 21.7 % Unhedged Floating Rate Debt as a % of Total Debt 6 22.3 % 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 $ 69,959 $ 60,842
Interest Coverage 10 8.6 x 7.7 x
Fixed Charge Coverage 11 8.5 x 6.8 x
Total Debt-to-Adjusted EBITDA 12 3.1 x 3.7 x
Weighted Average Maturity of Total Debt (years) 4.1 5.0
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1Includes 215,962 and 438,483 shares of unvested restricted stock outstanding as ofJune 30, 2021 and 2020, respectively. Also includes 275,727 and 139,224 shares held in the Deferred Compensation Plan as ofJune 30, 2021 and 2020, respectively. 2Closing price of our shares of common stock on theNew York Stock Exchange onJune 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. 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 ofDecember 31, 2020 . See "Note 9 - Derivative Financial Instruments" in our condensed notes to consolidated financial statements for more information regarding our interest rate caps. 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 ofDecember 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. 9Earnings before interest, taxes, gains (losses) from sales of property, depreciation and amortization, acquisition costs and stock-based compensation ("Adjusted EBITDA") for the six months endedJune 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 six months endedJune 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 Sources and Uses of Cash Our principal sources of cash are cash from operations, borrowings under loans payable, draws on our 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. 34 -------------------------------------------------------------------------------- Table of Contents Cash From Operating Activities. Net cash provided by operating activities totaled approximately$59.2 million for the six months endedJune 30, 2021 compared to approximately$45.4 million for the six months endedJune 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 ten properties during six months endedJune 30, 2021 compared to four properties acquired in the same period from the prior year. Cash From Investing Activities. Net cash used in investing activities was approximately$183.4 million and net cash provided by investing activities was$5.5 million , for the six months endedJune 30, 2021 and 2020, respectively, which consisted primarily of cash paid for property acquisitions of approximately$160.0 million and$40.4 million , respectively, additions to capital improvements of approximately$23.4 million and$19.7 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$0 and$49.7 million , respectively. Cash From Financing Activities. Net cash provided by financing activities was approximately$59.1 million for the six months endedJune 30, 2021 , which consisted primarily of approximately$111.0 million in net common stock issuance proceeds partially offset by approximately$40.0 million in equity dividend payments and approximately$11.3 million in mortgage loan payments. Net cash used in financing activities was approximately$14.9 million for the six months endedJune 30, 2020 , which consisted primarily of approximately$54.7 million in net common stock issuance proceeds, partially offset by approximately$36.5 million in equity dividend payments and approximately$32.8 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 ofAugust 3, 2021 , we have seven outstanding contracts with third-party sellers to acquire seven industrial properties for a total aggregate purchase price of$107.1 million . There is no assurance that we will acquire the properties under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions. The following table summarizes our contractual obligations due by period as ofJune 30, 2021 (dollars in thousands): Less than 1 More than 5 Contractual Obligations Year 1-3 Years 3-5 Years Years Total Debt$ 100,000 $ 50,000 $ 100,000 $ 200,000 $ 450,000 Debt interest payments 13,325 23,478 16,795 15,475 69,073 Operating lease commitments 481 184 - - 665 Purchase obligations 107,050 - - - 107,050 Total$ 220,856 $ 73,662 $ 116,795 $ 215,475 $ 626,788 As ofAugust 3, 2021 , we executed five non-binding letters of intent with third-party sellers to acquire five industrial properties for a total anticipated purchase price of approximately$59.9 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. 35 -------------------------------------------------------------------------------- Table of Contents 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 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 six months endedJune 30, 2021 and 2020 (dollars in thousands except per share data): For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change Net income$ 17,378 $ 30,704 $ (13,326) (43.4) % $ 33,635$ 43,560 $ (9,925) (22.8) % Gain on sales of real estate investments - (17,750) 17,750 n/a - (17,750) 17,750 n/a Depreciation and amortization 11,968 11,459 509 4.4 % 23,344 22,559 785 3.5 % Non-real estate depreciation (17) (20) 3 (15.0) % (30) (46) 16 (34.8) % Allocation to participating securities 1 (90) (152) 62 (40.8) % (176) (305) 129 (42.3) % Funds from operations attributable to common stockholders 2$ 29,239 $ 24,241 $ 4,998 20.6 % $ 56,773$ 48,018 $ 8,755 18.2 %
Basic FFO per common share
16.7 % 0.82 $ 0.71 $ 0.11 15.5 %
Diluted FFO per common share
16.7 % 0.82 $ 0.71 $ 0.11 15.5 %
Weighted average basic common
shares 69,580,253 67,622,005 69,094,360 67,342,293
Weighted average diluted
common shares 69,808,430 68,029,144 69,317,407 67,749,432
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 216,025 and 438,595 of weighted average unvested restricted shares
outstanding for the three months ended June 30, 2021 and 2020, respectively, and
213,897 and 436,567 of weighted average unvested restricted shares outstanding
for the six months ended June 30, 2021 and 2020, respectively.
2Includes performance share award expense of approximately $1.3 million and $1.0
million for the three months ended June 30, 2021 and 2020, respectively, and
approximately $2.6 million and $2.5 million for the six months ended
36
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June 30, 2021 and 2020, respectively. 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 $5.0 million and $8.8 million for the three and
six months ended June 30, 2021 , respectively, compared to the same periods from
the prior year due primarily to same store NOI growth of approximately $4.4
million and $7.6 million for the three and six months ended June 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
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 six months ended June 30, 2021 and 2020 (dollars in
thousands):
For the Three Months Ended June For the Six Months Ended June
30, 30,
2021 2020 $ Change % Change 2021 2020 $ Change % Change
Net income $ 17,378 $ 30,704 $ (13,326) (43.4) % $ 33,635 $ 43,560 $ (9,925) (22.8) %
Gain on sales of real estate
investments - (17,750) 17,750 n/a - (17,750) 17,750 n/a
Depreciation and amortization 11,968 11,459 509 4.4 % 23,344 22,559 785 3.5 %
Interest expense, including
amortization 4,016 3,909 107 2.7 % 8,161 7,915 246 3.1 %
Stock-based compensation 2,677 2,316 361 15.6 % 4,647 4,495 152 3.4 %
Acquisition costs 117 11 106 963.6 % 172 63 109 173.0 %
Adjusted EBITDA $ 36,156 $ 30,649 $ 5,507 18.0 % $ 69,959 $ 60,842 $ 9,117 15.0 %
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 June 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 June 30, 2021 . As
of June 30, 2021 , the same store pool consisted of 213 buildings aggregating
approximately 12.7 million square feet representing approximately 92.0% 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 six
months ended
For the Three Months Ended June For the Six Months Ended June
30, 30,
2021 2020 $ Change % Change 2021 2020 $ Change % Change
Net income 1 $ 17,378 $ 30,704 $ (13,326) (43.4) % $ 33,635 $ 43,560 $ (9,925) (22.8) %
Depreciation and amortization 11,968 11,459 509 4.4 % 23,344 22,559 785 3.5 %
General and administrative 6,866 5,665 1,201 21.2 % 12,448 11,423 1,025 9.0 %
Acquisition costs 117 11 106 963.6 % 172 63 109 173.0 %
Total other income and
expenses 3,795 (14,031) 17,826 n/a 7,704 (10,589) 18,293 n/a
Net operating income 40,124 33,808 6,316 18.7 % 77,303 67,016 10,287 15.4 %
Less non-same store NOI 2 (3,438) (1,531) (1,907) 124.6 % (5,616) (2,931) (2,685) 91.6 %
Same store NOI $ 36,686 $ 32,277 $ 4,409 13.7 % $ 71,687 $ 64,085 $ 7,602 11.9 %
Less straight-line rents and
amortization of lease
intangibles 3 (2,786) (2,129) (657) 30.9 % (5,219) (3,570) (1,649) 46.2 %
Cash-basis same store NOI
12.4 % $ 66,468 $ 60,515 $ 5,953 9.8 %
Less termination fee income (29) (119) 90 (75.6) % (147) (159) 12 (7.5) %
Cash-basis same store NOI
excluding termination fees
12.8 % $ 66,321 $ 60,356 $ 5,965 9.9 %
1Includes approximately $0.1 million and $0.2 million of lease termination
income for the three months ended June 30, 2021 and 2020, respectively, and
approximately $0.2 million of lease termination income for both the six months
ended June 30, 2021 and 2020.
2Includes 2020 and 2021 acquisitions and dispositions, eight improved land
parcels and three properties under redevelopment.
3Includes straight-line rents and amortization of lease intangibles for the same
store pool only.
Cash-basis same store NOI increased by approximately $3.8 million for the three
months ended June 30, 2021 compared to the same period from the prior year
primarily due to increased rental revenue on new and renewed leases. For the
three months ended June 30, 2021 and 2020, total contractual rent abatements of
approximately $0.7 million and $1.2 million , respectively, were given to certain
tenants in the same-store pool and approximately $0 and $0.1 million ,
respectively, in lease termination income was received from certain tenants in
the same store pool. In addition, approximately $0.9 million of the increase in
cash-basis same store NOI for the three months ended June 30, 2021 related to
properties that were acquired vacant or with near term expirations in 2019.
Cash-basis same store NOI increased by approximately $6.0 million for the six
months ended June 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 both the six months ended June 30,
2021 and 2020, total contractual rent abatements of approximately $1.6 million
were given to certain tenants in the same-store pool and approximately $0.1
million and $0.2 million , respectively, in lease termination income was received
from certain tenants in the same store pool. In addition, approximately $1.7
million of the increase in cash-basis same store NOI for the six months ended
June 30, 2021 related to properties that were acquired vacant or with near term
expirations in 2019.
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