Terreno Realty Corp [TRNO] Filings

10-Q 1 trno-20230930.htm 10-Q trno-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

Form 10-Q

_________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 001-34603

_________________________

Terreno Realty Corporation

(Exact Name of Registrant as Specified in Its Charter)

_________________________


Maryland									27-1262675
(State or Other Jurisdiction of Incorporation or Organization)									(I.R.S. Employer Identification No.)

10500 NE 8th Street, Suite 1910 Bellevue, WA									98004

(Address of Principal Executive Offices)									(Zip Code)

Registrant’s telephone number, including area code: (415) 655-4580

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

TRNO

New York Stock Exchange

_________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”

and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 85,385,905 shares of its common stock, $0.01 par value per share, outstanding as of October 30, 2023.

Terreno Realty Corporation

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PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements of Terreno Realty Corporation (unaudited)
	Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	2
	Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022	3

	Consolidated Statements of Equity for the nine months ended September 30, 2023 and 2022	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	5
	Condensed Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
SIGNATURES		43

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements of Terreno Realty Corporation

Terreno Realty Corporation

Consolidated Balance Sheets

(in thousands – except share and per share data)


	September 30, 2023		December 31, 2022
	(unaudited)
ASSETS
Investments in real estate
Land	$	1,933,179	$	1,850,860
Buildings and improvements	1,519,178		1,372,473
Construction in progress	339,380		51,896
Intangible assets	138,554		123,545
Total investments in properties	3,930,291		3,398,774
Accumulated depreciation and amortization	(370,237)		(323,631)
Net investments in properties	3,560,054		3,075,143
Properties held for sale, net	7,266		—
Net investments in real estate	3,567,320		3,075,143
Cash and cash equivalents	96,196		26,393
Restricted cash	4,026		1,690

Other assets, net	71,923		61,215
Total assets	$	3,739,465	$	3,164,441
LIABILITIES AND EQUITY
Liabilities
Credit facility	$	—	$	—
Term loans payable, net	199,086		198,993
Senior unsecured notes, net	572,269		571,825

Security deposits	32,570		27,454
Intangible liabilities, net	87,181		55,873
Dividends payable	38,424		30,753

Accounts payable and other liabilities	72,965		49,692
Total liabilities	1,002,495		934,590
Commitments and contingencies (Note 11)
Equity
Stockholders’ equity
Common stock: $0.01 par value, 400,000,000 shares authorized, and 84,871,366 and 76,463,482 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively.	850		765
Additional paid-in capital	2,691,181		2,167,276
Common stock held in deferred compensation plan, 514,539 and 417,665 shares at September 30, 2023 and December 31, 2022, respectively.	(32,134)		(26,462)
Retained earnings	77,073		88,272


Total stockholders’ equity	2,736,970		2,229,851
Total liabilities and equity	$	3,739,465	$	3,164,441

The accompanying condensed notes are an integral part of these consolidated financial statements.

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Terreno Realty Corporation

Consolidated Statements of Operations

(in thousands – except share and per share data)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
REVENUES
Rental revenues and tenant expense reimbursements	$	82,920	$	70,801	$	237,106	$	200,205

Total revenues	82,920		70,801		237,106		200,205
COSTS AND EXPENSES
Property operating expenses	20,469		17,140		57,436		49,820
Depreciation and amortization	18,245		16,957		54,636		47,227
General and administrative	9,119		8,139		28,205		22,999
Acquisition costs and other	51		36		126		1,091
Total costs and expenses	47,884		42,272		140,403		121,137
OTHER INCOME (EXPENSE)
Interest and other income	1,093		175		4,029		411
Interest expense, including amortization	(5,814)		(6,265)		(19,089)		(16,393)

Gain on sales of real estate investments	—		—		12,257		76,048
Total other (expense) income	(4,721)		(6,090)		(2,803)		60,066
Net income	30,315		22,439		93,900		139,134



Allocation to participating securities	(150)		(107)		(437)		(583)
Net income available to common stockholders	$	30,165	$	22,332	$	93,463	$	138,551
EARNINGS PER COMMON SHARE - BASIC AND DILUTED:
Net income available to common stockholders - basic	$	0.36	$	0.30	$	1.13	$	1.84
Net income available to common stockholders - diluted	$	0.36	$	0.30	$	1.13	$	1.84
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	84,041,413		75,495,232		82,366,365		75,316,222
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	84,266,740		75,588,750		82,597,824		75,402,846

The accompanying condensed notes are an integral part of these consolidated financial statements.

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Terreno Realty Corporation

Consolidated Statements of Equity

(in thousands – except share data)

(Unaudited)

Nine months ended September 30, 2023:


	Common Stock			Additional Paid- in Capital		Common Shares Held in Deferred Compensation Plan	Deferred Compensation Plan		Retained (Deficit) Earnings
	Number of Shares	Amount									Total
Balance as of December 31, 2022	76,463,482	$	765	$	2,167,276	417,665	$	(26,462)	$	88,272		$	2,229,851
Net income	—	—		—		—	—		23,331			23,331
Issuance of common stock, net of issuance costs of $943	6,197,825	62		377,426		—	—		—			377,488
Forfeiture of common stock related to employee awards	(6,434)	—		—		—	—		—			—
Common shares acquired related to employee awards	(9,745)	—		(627)		—	—		—			(627)

Issuance of restricted stock	59,504	—		—		—	—		—			—
Stock-based compensation	—	—		3,038		—	—		—			3,038
Common stock dividends ($0.40 per share)	—	—		—		—	—		(33,209)			(33,209)
Deposits to deferred compensation plan	(94,794)	—		5,547		94,794	(5,547)		—			—

Balance as of March 31, 2023	82,609,838	827		2,552,660		512,459	(32,009)		78,394			2,599,872
Net income	—	—		—		—	—		40,254			40,254
Issuance of common stock, net of issuance costs of $822	629,586	6		37,897		—	—		—			37,903

Common shares acquired related to employee awards	(1,167)	—		(105)		—	—		—			(105)


Stock-based compensation	—	—		3,805		—	—		—			3,805
Common stock dividends ($0.40 per share)	—	—		—		—	—		(33,465)			(33,465)
Deposits to deferred compensation plan	(2,080)	—		125		2,080	(125)		—			—

Balance as of June 30, 2023	83,236,177	$	833	$	2,594,382	514,539	$	(32,134)	$	85,183		$	2,648,264
Net income	—	—		—		—	—		30,315			30,315
Issuance of common stock, net of issuance costs of $1,438	1,575,173	17		94,292		—	—		—			94,309
Forfeiture of common stock related to employee awards	(555)	—		—		—	—		—			—
Common shares acquired related to employee awards	(12,499)	—		(773)		—	—		—			(773)

Issuance of restricted stock	73,070	—		—		—	—		—			—
Stock-based compensation	—	—		3,280		—	—		—			3,280
Common stock dividends ($0.45 per share)	—	—		—		—	—		(38,425)			(38,425)


Balance as of September 30, 2023	84,871,366	$	850	$	2,691,181	514,539	$	(32,134)	$	77,073		$	2,736,970

Nine months ended September 30, 2022:


	Common Stock			Additional Paid- in Capital		Common Shares Held in Deferred Compensation Plan	Deferred Compensation Plan		Retained (Deficit) Earnings
	Number of Shares	Amount									Total
Balance as of December 31, 2021	75,068,575	$	752	$	2,069,604	275,727	$	(15,197)	$	2,804		$	2,057,963
Net income	—	—		—		—	—		19,662			19,662
Issuance of common stock, net of issuance costs of $—	147,285	—		—		—	—		—			—
Forfeiture of common stock related to employee awards	(1,206)	—		—		—	—		—			—
Common shares acquired related to employee awards	(6,348)	—		(493)		—	—		—			(493)

Issuance of restricted stock	41,255	—		—		—	—		—			—
Stock-based compensation	—	—		2,829		—	—		—			2,829
Common stock dividends ($0.34 per share)	—	—		—		—	—		(25,680)			(25,680)
Deposits to deferred compensation plan	(147,285)	—		11,535		147,285	(11,535)		—			—

Balance as of March 31, 2022	75,102,276	752		2,083,475		423,012	(26,732)		(3,214)			2,054,281
Net income	—	—		—		—	—		97,033			97,033
Issuance of common stock, net of issuance costs of $112	37,833	—		1,947		—	—		—			1,947
Forfeiture of common stock related to employee awards	(28,185)	—		—		—	—		—			—


Issuance of restricted stock	12,032	—		—		—	—		—			—
Stock-based compensation	—	—		2,010		—	—		—			2,010
Common stock dividends ($0.34 per share)	—	—		—		—	—		(25,686)			(25,686)
Deposits to deferred compensation plan	(3,582)	—		250		3,582	(250)		—			—

Balance as of June 30, 2022	75,120,374	$	752	$	2,087,682	426,594	$	(26,982)	$	68,133		$	2,129,585
Net income	—	—		—		—	—		22,439			22,439
Issuance of common stock, net of issuance costs of $548	444,512	5		28,330		—	—		—			28,335

Common shares acquired related to employee awards	(8,367)	—		(518)		—	—		—			(518)

Issuance of restricted stock	83,616	—		—		—	—		—			—
Stock-based compensation	—	—		2,679		—	—		—			2,679
Common stock dividends ($0.40 per share)	—	—		—		—	—		(30,427)			(30,427)


Balance as of September 30, 2022	75,640,135	$	757	$	2,118,173	426,594	$	(26,982)	$	60,145		$	2,152,093

The accompanying condensed notes are an integral part of these consolidated financial statements.

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Terreno Realty Corporation

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	For the Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	93,900	$	139,134
Adjustments to reconcile net income to net cash provided by operating activities
Straight-line rents	(6,510)		(7,326)
Amortization of lease intangibles	(10,681)		(10,807)
Depreciation and amortization	54,636		47,227

Gain on sales of real estate investments	(12,257)		(76,048)
Deferred financing cost amortization	1,157		988

Stock-based compensation	10,123		7,518
Changes in assets and liabilities
Other assets	(4,447)		543
Accounts payable and other liabilities	14,705		7,790
Net cash provided by operating activities	140,626		109,019
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions	(392,503)		(344,833)
Proceeds from sales of real estate investments, net	24,585		106,835
Additions to construction in progress	(72,449)		(24,978)
Additions to buildings, improvements and leasing costs	(39,270)		(50,827)



Net cash used in investing activities	(479,637)		(313,803)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock	512,902		30,941
Issuance costs on issuance of common stock	(2,740)		(468)
Repurchase of common stock related to employee awards	(1,505)		(1,011)




Borrowings on credit facility	49,000		162,000
Payments on credit facility	(49,000)		(152,000)
Borrowings on term loans payable	—		100,000


Payments on senior unsecured notes	—		(50,000)


Payment of deferred financing costs	(80)		(1,498)
Dividends paid to common stockholders	(97,427)		(76,984)

Net cash provided by financing activities	411,150		10,980
Net increase (decrease) in cash and cash equivalents and restricted cash	72,139		(193,804)
Cash and cash equivalents and restricted cash at beginning of period	28,083		204,801
Cash and cash equivalents and restricted cash at end of period	$	100,222	$	10,997
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest, net of capitalized interest	$	24,156	$	19,572
Supplemental disclosures of non-cash transactions
Accounts payable related to capital improvements	29,441		22,861
Non-cash issuance of common stock to the deferred compensation plan	(5,672)		(11,785)




Reconciliation of cash paid for property acquisitions
Acquisition of properties	$	436,980	$	360,818
Assumption of other assets and liabilities	(44,477)		(15,985)
Net cash paid for property acquisitions	$	392,503	$	344,833

The accompanying condensed notes are an integral part of these consolidated financial statements.

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Terreno Realty Corporation

Condensed Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Organization

Terreno Realty Corporation (“Terreno”, and together with its subsidiaries, 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. All square feet, acres, occupancy and number of properties disclosed in these condensed notes to the consolidated financial statements are unaudited. As of September 30, 2023, the Company owned 257 buildings aggregating approximately 15.8 million square feet, 46 improved land parcels (including one improved land parcel held for sale) consisting of approximately 165.8 acres, eight properties under development or redevelopment and approximately 62.7 acres of land entitled for future development.

The Company is an internally managed Maryland corporation and elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2010.

Note 2. Significant Accounting Policies

Basis of Presentation. The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. In management’s opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The interim consolidated financial statements include all of the Company’s accounts and its subsidiaries and all intercompany balances and transactions have been eliminated in consolidation. The financial statements should be read in conjunction with the financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and the notes thereto, which was filed with the Securities and Exchange Commission on February 8, 2023.

Use of Estimates. The preparation of the interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Capitalization of Costs. The Company capitalizes costs directly related to the redevelopment, renovation and expansion of its investment in real estate. Costs associated with such projects are capitalized as incurred. If the project is abandoned, these costs are expensed during the period in which the redevelopment, renovation or expansion project is abandoned. Costs considered for capitalization include, but are not limited to, construction costs, interest, real estate taxes and insurance, if appropriate. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress. In the event that the activities to ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. Costs incurred for maintaining and repairing properties, which do not extend their useful lives, are expensed as incurred.

Interest is capitalized based on actual capital expenditures from the period when redevelopment, renovation or expansion commences until the asset is ready for its intended use, at the weighted average borrowing rate during the period.

Investments in Real Estate. Investments in real estate, including tenant improvements, leasehold improvements and leasing costs, are stated at cost, less accumulated depreciation, unless circumstances indicate that the cost cannot be recovered, in which case, an adjustment to the carrying value of the property is made to reduce it to its estimated fair value. The Company also reviews the impact of above and below-market leases, in-place leases and lease origination costs for acquisitions and records an intangible asset or liability accordingly.

Impairment. Carrying values for financial reporting purposes are reviewed for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable. Examples of such events or changes in circumstances may include classifying an asset to be held for sale, changing the intended hold period or when an asset remains vacant significantly longer than expected. The intended use of an asset either held for sale or held for use can significantly impact how impairment is measured. If an asset is intended to be held for the long-term, the recoverability is based on the undiscounted future cash flows. If the asset carrying value is not supported on an undiscounted

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future cash flow basis, then the asset carrying value is measured against the lower of cost or the present value of expected cash flows over the expected hold period. An impairment charge to earnings is recognized for the excess of the asset’s carrying value over the lower of cost or the present values of expected cash flows over the expected hold period. If an asset is intended to be sold, impairment is determined using the estimated fair value less costs to sell. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions, among other things, regarding current and future economic and market conditions and the availability of capital. The Company determines the estimated fair values based on its assumptions regarding rental rates, lease-up and holding periods, as well as sales prices. When available, current market information is used to determine capitalization and rental growth rates. If available, current comparative sales values may also be used to establish fair value. When market information is not readily available, the inputs are based on the Company’s understanding of market conditions and the experience of the Company’s management team. Actual results could differ significantly from the Company’s estimates. The discount rates used in the fair value estimates represent a rate commensurate with the indicated holding period with a premium layered on for risk. There were no impairment charges recorded to the carrying values of the Company’s properties during the three or nine months ended September 30, 2023 or 2022.

Property Acquisitions. In accordance with Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not considered a business. To be a business, the set of acquired activities and assets must include inputs and one or more substantive processes that together contribute to the ability to create outputs. The Company has determined that its real estate property acquisitions will generally be accounted for as asset acquisitions under the clarified definition. Upon acquisition of a property the Company estimates the fair value of acquired tangible assets (consisting generally of land, buildings and improvements) and intangible assets and liabilities (consisting generally of the above and below-market leases and the origination value of all in-place leases). The Company determines fair values using Level 3 inputs such as replacement cost, estimated cash flow projections and other valuation techniques and applying appropriate discount and capitalization rates based on available market information. Mortgage loans assumed in connection with acquisitions are recorded at their fair value using current market interest rates for similar debt at the date of acquisition. Acquisition-related costs associated with asset acquisitions are capitalized to individual tangible and intangible assets and liabilities assumed on a relative fair value basis and acquisition-related costs associated with business combinations are expensed as incurred.

The fair value of the tangible assets is determined by valuing the property as if it were vacant. Land values are derived from current comparative sales values, when available, or management’s estimates of the fair value based on market conditions and the experience of the Company’s management team. Building and improvement values are calculated as replacement cost less depreciation, or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods. The fair value of the above and below-market leases is based on the present value of the difference between the contractual amounts to be received pursuant to the acquired leases (using a discount rate that reflects the risks associated with the acquired leases) and the Company’s estimate of the market lease rates measured over a period equal to the remaining term of the leases plus the term of any below-market fixed rate renewal options. The above and below-market lease values are amortized to rental revenues over the remaining initial term plus the term of any below-market fixed rate renewal options that are considered bargain renewal options of the respective leases. The total net impact to rental revenues due to the amortization of above and below-market leases was a net increase of approximately $3.5 million and $4.2 million for the three months ended September 30, 2023 and 2022, respectively, and approximately $10.7 million and $10.8 million for the nine months ended September 30, 2023 and 2022, respectively. The origination value of in-place leases is based on costs to execute similar leases, including commissions and other related costs. The origination value of in-place leases also includes real estate taxes, insurance and an estimate of lost rental revenue at market rates during the estimated time required to lease up the property from vacant to the occupancy level at the date of acquisition. The remaining weighted average lease term related to these intangible assets and liabilities as of September 30, 2023 was 6.8 years. As of September 30, 2023 and December 31, 2022, the Company’s intangible assets and liabilities, including properties held for sale (if any), consisted of the following (dollars in thousands):


	September 30, 2023						December 31, 2022
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
In-place leases	$	135,912	$	(91,827)	$	44,085	$	119,959	$	(83,222)	$	36,737
Above-market leases	3,586		(3,568)		18		3,586		(3,558)		28
Below-market leases	(136,238)		49,057		(87,181)		(95,638)		39,765		(55,873)
Total	$	3,260	$	(46,338)	$	(43,078)	$	27,907	$	(47,015)	$	(19,108)

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Depreciation and Useful Lives of Real Estate and Intangible Assets. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets or liabilities. The following table reflects the standard depreciable lives typically used to compute depreciation and amortization. However, such depreciable lives may be different based on the estimated useful life of such assets or liabilities.


Description						Standard Depreciable Life
Land						Not depreciated
Building						40 years
Building Improvements						5-40 years
Tenant Improvements						Shorter of lease term or useful life
Leasing Costs						Lease term
In-place Leases						Lease term
Above/Below-Market Leases						Lease term

Held for Sale Assets. The Company considers a property to be held for sale when it meets the criteria established under Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment (See “Note 5 - Held for Sale/Disposed Assets”). Properties held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they are held for sale.

Cash and Cash Equivalents. Cash and cash equivalents consists of cash held in a major banking institution and other highly liquid short-term investments with original maturities of three months or less. Cash equivalents are generally invested in U.S. government securities, government agency securities or money market accounts.

Restricted Cash. Restricted cash includes cash held in escrow in connection with property acquisitions and reserves for certain capital improvements, leasing, interest and real estate tax and insurance payments as required by certain mortgage loan obligations.

The following summarizes the reconciliation of cash and cash equivalents and restricted cash as presented in the accompanying consolidated statements of cash flows (dollars in thousands):


	For the Nine Months Ended September 30,
	2023		2022
Beginning
Cash and cash equivalents at beginning of period	$	26,393	$	204,404
Restricted cash	1,690		397
Cash and cash equivalents and restricted cash	28,083		204,801
Ending
Cash and cash equivalents at end of period	96,196		10,153
Restricted cash	4,026		844
Cash and cash equivalents and restricted cash	100,222		10,997
Net increase (decrease) in cash and cash equivalents and restricted cash	$	72,139	$	(193,804)

Revenue Recognition. The Company records rental revenue from operating leases on a straight-line basis over the term of the leases and maintains an allowance for estimated losses that may result from the inability of its tenants to make required payments. If tenants fail to make contractual lease payments that are greater than the Company’s allowance for doubtful accounts, security deposits and letters of credit, then the Company may have to recognize additional doubtful account charges in future periods. The Company monitors the liquidity and creditworthiness of its tenants on an ongoing basis by reviewing their financial condition periodically as appropriate. Each period the Company reviews its outstanding accounts receivable, including straight-line rents, for doubtful accounts and provides allowances as needed. The Company also records lease termination fees when a tenant has executed a definitive termination agreement with the Company and the payment of the termination fee is not subject to any conditions that must be met or waived before the fee is due to the Company. If a tenant remains in the leased space following the execution of a definitive termination agreement, the applicable termination will be deferred and recognized over the term of such tenant’s occupancy. Tenant expense reimbursement income includes payments and amounts due from tenants pursuant to their leases for real estate taxes, insurance and other recoverable property operating expenses and is recognized as revenues during the same period the related expenses are incurred.

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As of September 30, 2023 and December 31, 2022, approximately $53.6 million and $48.0 million, respectively, of straight-line rent and accounts receivable, net of allowances of approximately $0.9 million and $0.6 million as of September 30, 2023 and December 31, 2022, respectively, were included as a component of other assets in the accompanying consolidated balance sheets.

Deferred Financing Costs. Costs incurred in connection with financings are capitalized and amortized to interest expense using the effective interest method over the term of the related loan. Deferred financing costs associated with the Company’s revolving credit facility are classified as an asset, as a component of other assets in the accompanying consolidated balance sheets, and deferred financing costs associated with debt liabilities are reported as a direct deduction from the carrying amount of the debt liability in the accompanying consolidated balance sheets. Deferred financing costs related to the revolving credit facility and debt liabilities are carried at cost, net of accumulated amortization in the aggregate of approximately $13.1 million and $11.9 million as of September 30, 2023 and December 31, 2022, respectively.

Income Taxes. The Company elected to be taxed as a REIT under the Code and operates as such beginning with its taxable year ended December 31, 2010. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If it fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants it relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company believes it is organized and operates in such a manner as to qualify for treatment as a REIT.

ASC 740-10, Income Taxes (“ASC 740-10”), provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740-10 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold are recorded as a tax expense in the current year. As of September 30, 2023 and December 31, 2022, the Company did not have any unrecognized tax benefits and does not believe that there will be any material changes in unrecognized tax positions over the next 12 months. The Company’s tax returns are subject to examination by federal, state and local tax jurisdictions, which as of September 30, 2023, include years 2019 to 2022 for federal purposes.

Stock-Based Compensation and Other Long-Term Incentive Compensation. The Company follows the provisions of ASC 718, Compensation-Stock Compensation, to account for its stock-based compensation plan, which requires that the compensation cost relating to stock-based payment transactions be recognized in the financial statements and that the cost be measured on the fair value of the equity or liability instruments issued. The Company’s 2019 Equity Incentive Plan (the “2019 Plan”) provides for the grant of restricted stock awards, performance share awards, unrestricted shares or any combination of the foregoing. Stock-based compensation is recognized as a general and administrative expense in the accompanying consolidated statements of operations and measured at the fair value of the award on the date of grant. The Company estimates the forfeiture rate based on historical experience as well as expected behavior. The amount of the expense may be subject to adjustment in future periods depending on the specific characteristics of the stock-based award.

In addition, the Company has awarded long-term incentive target awards (the “Performance Share awards”) under its Amended and Restated Long-Term Incentive Plan (as amended and restated, the “Amended LTIP”), which the Company amended and restated on January 8, 2019, to its executives that may be payable in shares of the Company’s common stock after the conclusion of each pre-established performance measurement period, which is generally three years. The amount that may be earned is variable depending on the relative total shareholder return of the Company’s common stock as compared to the total shareholder return of the MSCI U.S. REIT Index (RMS) and the FTSE Nareit Equity Industrial Index over the pre-established performance measurement period. Under the Amended LTIP, each participant’s Performance Share award granted will be expressed as a number of shares of common stock and settled in shares of common stock. The grant date fair value of the Performance Share awards will be determined using a Monte Carlo simulation model on the date of grant and recognized on a straight-line basis over the performance period.

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Fair Value of Financial Instruments. ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) (See “Note 8 - Fair Value Measurements”), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also provides guidance for using fair value to measure financial assets and liabilities. ASC 820 requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).

Segment Disclosure. ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has determined that it has one reportable segment, with activities related to investing in real estate. The Company’s investments in real estate are geographically diversified and the chief operating decision makers evaluate operating performance on an individual asset level. As each of the Company’s assets has similar economic characteristics, the assets have been aggregated into one reportable segment.

Note 3. Concentration of Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company may maintain deposits in federally insured financial institutions in excess of federally insured limits. However, the Company’s management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

As of September 30, 2023, the Company owned 43 buildings aggregating approximately 2.6 million square feet and 13 improved land parcels consisting of approximately 68.0 acres located in Northern New Jersey/New York City, which accounted for a combined percentage of approximately 24.3% of its annualized base rent. Such annualized base rent is based on contractual monthly base rent per the leases, for all buildings and improved land parcels, excluding any partial or full rent abatements as of September 30, 2023, multiplied by 12.

Other real estate companies compete with the Company in its real estate markets. This results in competition for tenants to occupy space. The existence of competing properties could have a material impact on the Company’s ability to lease space and on the level of rent that can be achieved. The Company had no tenant that accounted for greater than 10% of the Company's annualized base rent as of September 30, 2023.

Note 4. Investments in Real Estate

During the three months ended September 30, 2023, the Company acquired one industrial property with a total initial investment, including acquisition costs, of approximately $16.5 million, of which $13.7 million was recorded to land and $2.8 million to intangible assets. Additionally, the Company assumed $2.1 million in liabilities. Upon acquisition, the property was placed into redevelopment with a total expected investment of approximately $40.6 million.

During the nine months ended September 30, 2023, the Company acquired five industrial properties with a total initial investment, including acquisition costs, of approximately $437.0 million, of which $267.4 million was recorded to land, $147.9 million to buildings and improvements, and $21.7 million to intangible assets. Additionally, the Company assumed $45.1 million in liabilities.

The Company recorded revenues and net income for the three months ended September 30, 2023 of approximately $4.4 million and $1.5 million, respectively, and recorded revenues and net income for the nine months ended September 30, 2023 of approximately $8.6 million and $2.7 million, respectively, related to the 2023 acquisitions.

During the three months ended September 30, 2022, the Company acquired four industrial properties with a total initial investment, including acquisition costs, of approximately $68.9 million, of which $62.1 million was recorded to land, $5.5 million to buildings and improvements, and $1.3 million to intangible assets. Additionally, the Company assumed $1.1 million in liabilities.

During the nine months ended September 30, 2022, the Company acquired 16 industrial properties with a total initial investment, including acquisition costs, of approximately $360.8 million, of which $261.6 million was recorded to land, $88.3 million to buildings and improvements, and $10.9 million to intangible assets. Additionally, the Company assumed $16.1 million in liabilities.

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The Company recorded revenues and net income for the three months ended September 30, 2022 of approximately $4.1 million and $1.0 million, respectively, and recorded revenues and net income for the nine months ended September 30, 2022 of approximately $5.8 million and $1.7 million, respectively, related to the 2022 acquisitions.

The above assets and liabilities were recorded at fair value, which uses Level 3 inputs. The properties were acquired from unrelated third parties using existing cash on hand, proceeds from property sales, the issuance of common stock and borrowings on the revolving credit facility.

As of September 30, 2023, the Company had eight properties under development or redevelopment that, upon completion, will consist of seven buildings aggregating approximately 1.2 million square feet and one approximately 2.8 acre improved land parcel. Additionally, the Company owned approximately 62.7 acres of land entitled for future development that, upon completion, will consist of six buildings aggregating approximately 1.1 million square feet. The following table summarizes certain information with respect to the properties under development or redevelopment and the land entitled for future development as of September 30, 2023:


Property Name	Location	Total Expected Investment (in thousands) 1		Estimated Post-Development Square Feet	Estimated Post-Development Acreage


Properties under development or redevelopment:
Countyline Phase IV
Countyline Building 38 2	Hialeah, FL	$	88,800	506,215	—
Countyline Building 39 2	Hialeah, FL	42,632		178,201	—
Countyline Building 40 2	Hialeah, FL	41,968		186,107	—
Countyline Building 41 2	Hialeah, FL	41,400		190,907	—
Maple III	Rancho Dominguez, CA	26,980		—	2.8
147th Street	Hawthorne, CA	18,095		31,378	—
East Garry Avenue	Santa Ana, CA	40,553		91,500	—
Paterson Plank III	Carlstadt, NJ	35,672		47,316	—
Total		$	336,100	1,231,624	2.8

Land entitled for future development:
Countyline Phase IV
Countyline Phase IV Land 2	Hialeah, FL	295,700		1,137,121	—
Total		$	295,700	1,137,121	—

1Excludes below-market lease adjustments recorded at acquisition. Total expected investment for the properties includes 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.

2Collectively, “Countyline Phase IV”, a 121-acre project entitled for 2.2 million square feet of industrial distribution buildings located in Miami’s Countyline Corporate Park (“Countyline”), immediately adjacent to the Company’s seven buildings within Countyline. Countyline Phase IV, a landfill redevelopment adjacent to Florida’s Turnpike and the southern terminus of I-75, is expected to contain ten LEED-certified industrial distribution buildings at completion.

During the nine months ended September 30, 2023, the Company completed redevelopment of one improved land parcel consisting of approximately 6.3 acres. The following table summarizes certain information with respect to the completed redevelopment property as of September 30, 2023:

Property Name

Location

Total

Investment (in

thousands) 1

Post-Development Square Feet

Post-Development Acreage

Completion Quarter

Berryessa

San Jose, CA

26,296

—

6.3

Q2 2023

1Total investment for the property includes the initial purchase price, buyer’s due diligence and closing costs, redevelopment expenditures, capitalized interest and leasing costs necessary to achieve stabilization.

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The Company capitalized interest associated with development, redevelopment, renovation or expansion activities of approximately $2.6 million and $0.6 million during the three months ended September 30, 2023 and 2022, respectively, and approximately $5.5 million and $2.2 million during the nine months ended September 30, 2023 and 2022, respectively.

Note 5. Held for Sale/Disposed Assets

As of September 30, 2023, the Company had entered into an agreement with a third-party purchaser to sell one property located in the Washington, D.C. market for a sales price of approximately $18.0 million (net book value of approximately $7.3 million). This property was sold on October 4, 2023.

During the nine months ended September 30, 2023, the Company sold one property located in the Northern New Jersey/New York City market for a sales price of approximately $25.5 million, resulting in a gain of approximately $12.3 million.

During the nine months ended September 30, 2022, the Company sold one property (consisting of 18 buildings) located in the Northern New Jersey/New York City market for a sales price of approximately $110.4 million, resulting in a gain of approximately $76.0 million.

Note 6. Debt

As of both September 30, 2023 and December 31, 2022, the Company had $775.0 million of unsecured debt and no secured debt. The following table summarizes the components of the Company’s indebtedness as of September 30, 2023 and December 31, 2022 (dollars in thousands):


	September 30, 2023		December 31, 2022		Margin Above SOFR	Interest Rate 1		Contractual Maturity Date

Unsecured Debt:

Credit Facility	$	—	$	—	1.1% 2	n/a		8/20/2025
5-Year Term Loan	100,000		100,000		1.3% 2	6.6	%	1/15/2027
5-Year Term Loan	100,000		100,000		1.3% 2	6.6	%	1/15/2028

$100M 7-Year Unsecured 3	100,000		100,000		n/a	3.8	%	7/14/2024
$50M 10-Year Unsecured 3	50,000		50,000		n/a	4.0	%	7/7/2026
$50M 12-Year Unsecured 3	50,000		50,000		n/a	4.7	%	10/31/2027
$100M 7-Year Unsecured 3	100,000		100,000		n/a	2.4	%	7/15/2028
$100M 10-Year Unsecured 3	100,000		100,000		n/a	3.1	%	12/3/2029
$125M 9-Year Unsecured 3	125,000		125,000		n/a	2.4	%	8/17/2030
$50M 10-Year Unsecured 3	50,000		50,000		n/a	2.8	%	7/15/2031





Total Unsecured Debt	775,000		775,000
Less: Unamortized debt issuance costs	(3,645)		(4,182)
Total	$	771,355	$	770,818

1Reflects the contractual interest rate under the terms of each loan as of September 30, 2023. Excludes the effects of unamortized debt issuance costs.

2The interest rates on these loans are comprised of the Secured Overnight Financing Rate (“SOFR”) plus a SOFR margin. The SOFR margins will range from 1.10% to 1.55% (1.10% as of September 30, 2023) for the revolving credit facility and 1.25% to 1.75% (1.25% as of September 30, 2023) for the term loans, depending on the ratio of the Company’s outstanding consolidated indebtedness to the value of the Company’s consolidated gross asset value and includes a 10 basis points SOFR credit adjustment.

3Collectively, the “Senior Unsecured Notes”.

The Company’s Sixth Amended and Restated Senior Credit Agreement (as amended, the “Amended Facility”) consists of a $400.0 million revolving credit facility that matures in August 2025, a $100.0 million term loan that matures in January 2027 and a $100.0 million term loan that matures in January 2028. As of both September 30, 2023 and December 31, 2022, there were no borrowings outstanding on the revolving credit facility and $200.0 million of borrowings outstanding on the term loans.

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The aggregate amount of the Amended Facility may be increased by up to an additional $500.0 million to a maximum amount not to exceed $1.1 billion, 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 $400.0 million revolving credit facility, the $100.0 million term loan maturing in January 2027 and the $100.0 million term loan maturing in January 2028, or (ii) 60.0% of the value of the unencumbered properties. Interest on the Amended Facility, including the term loans, is generally to be paid based upon, at the Company’s option, either (i) SOFR plus the applicable SOFR 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, thirty-day SOFR plus the applicable SOFR margin for SOFR rate loans under the Amended Facility plus 1.25%, or 1.25% per annum. The applicable SOFR margin will range from 1.10% to 1.55% (1.10% as of September 30, 2023) for the revolving credit facility and 1.25% to 1.75% (1.25% as of September 30, 2023) for the term loans, depending on the ratio of the Company’s outstanding consolidated indebtedness to the value of the Company’s consolidated gross asset value and includes a 10 basis points SOFR credit adjustment. 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 the Company’s outstanding consolidated indebtedness to the value of the Company’s consolidated gross asset value.

The Amended Facility and the Senior Unsecured Notes are guaranteed by the Company and by substantially all of the current and to-be-formed subsidiaries of the Company that own an unencumbered property. The Amended Facility and the Senior Unsecured Notes are not secured by the Company’s 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 the Company must comply. The Company was in compliance with the covenants under the Amended Facility and the Senior Unsecured Notes as of September 30, 2023 and December 31, 2022.

The scheduled principal payments of the Company’s debt as of September 30, 2023 were as follows (dollars in thousands):


	Credit Facility		Term Loan			Senior Unsecured Notes			Total Debt
2023 (3 months)	$	—	$	—		$	—		$	—
2024	—		—			100,000			100,000
2025	—		—			—			—
2026	—		—			50,000			50,000
2027	—		100,000			50,000			150,000
Thereafter	—		100,000			375,000			475,000
Total debt	—		200,000			575,000			775,000
Deferred financing costs, net	—		(914)			(2,731)			(3,645)
Total debt, net	$	—	$	199,086		$	572,269		$	771,355
Weighted average interest rate	n/a		6.6		%	3.1		%	4.0		%

Note 7. Leasing

The following is a schedule of minimum future cash rentals on tenant operating leases in effect as of September 30, 2023. The schedule does not reflect future rental revenues from the renewal or replacement of existing leases and excludes property operating expense reimbursements (dollars in thousands):


2023 (3 months)	$	60,005
2024	241,049
2025	224,558
2026	190,944
2027	144,295
Thereafter	342,267
Total	$	1,203,118

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Note 8. Fair Value Measurements

ASC 820 requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).

Financial Instruments Disclosed at Fair Value

As of September 30, 2023 and December 31, 2022, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying values because of the short-term nature of these investments or liabilities based on Level 1 inputs. The fair values of the Company’s Senior Unsecured Notes were estimated by calculating the present value of principal and interest payments, based on borrowing rates available to the Company, which are Level 2 inputs, adjusted with a credit spread, as applicable, and assuming the loans are outstanding through maturity. The fair value of the Company’s Amended Facility approximated its carrying value because the variable interest rates approximate market borrowing rates available to the Company, which are Level 2 inputs.

The following table sets forth the carrying value and the estimated fair value of the Company’s debt as of September 30, 2023 and December 31, 2022 (dollars in thousands):


	Fair Value Measurement Using
	Total Fair Value		Quoted Price in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value




Liabilities
Debt at:
September 30, 2023	$	695,712	$	—	$	695,712	$	—	$	771,355
December 31, 2022	$	700,926	$	—	$	700,926	$	—	$	770,818

Note 9. Stockholders’ Equity

The Company’s authorized capital stock consists of 400,000,000 shares of common stock, $0.01 par value per share, and 100,000,000 shares of preferred stock, $0.01 par value per share. The Company has an at-the-market equity offering program (the "$500 Million ATM Program") pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $500.0 million ($464.3 million remaining as of September 30, 2023) in amounts and at times to be determined by the Company from time to time. Prior to the implementation of the $500 Million ATM Program, the Company had a previous at-the-market equity offering program (the "$300 Million ATM Program"), which was substantially utilized as of September 5, 2023 and is no longer active. Actual sales under the $500 Million ATM Program, if any, will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Company’s common stock, determinations by the Company of the appropriate sources of funding for the Company and potential uses of funding available to the Company. During the three and nine months ended September 30, 2023, the Company issued an aggregate of 1,575,173 and 2,542,279 shares, respectively, of common stock at a weighted average offering price of $60.78 and $61.61 per share, respectively, under the $300 Million ATM Program and the $500 Million ATM Program, resulting in net proceeds of approximately $94.4 million and $154.4 million, respectively, and paying total compensation to the applicable sales agents of approximately $1.4 million and $2.3 million, respectively. During the three and nine months ended September 30, 2022, the Company issued an aggregate of 444,512 and 471,599 shares, respectively, of common stock at a weighted average offering price of $64.97 and $65.61 per share, respectively, under the $300 Million ATM Program, resulting in net proceeds of approximately $28.5 million and $30.5 million, respectively, and paying total compensation to the applicable sales agents of approximately $0.4 million and $0.4 million, respectively.

On February 13, 2023, the Company completed a public offering of 5,750,000 shares of common stock at a price per share of $62.50, which included the underwriters’ full exercise of their option to purchase an additional 750,000 shares. The net proceeds of the offering were approximately $355.9 million after deducting the underwriting discount and offering costs of approximately $3.5 million. The Company used the net proceeds for acquisitions.

The Company has a share repurchase program authorizing the Company to repurchase up to 3,000,000 shares of its outstanding common stock from time to time through December 31, 2024. Purchases made pursuant to the 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

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timing, manner, price and amount of any repurchases will be determined by the Company in its 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 of September 30, 2023, the Company had not repurchased any shares of common stock pursuant to its share repurchase program.

In connection with the Annual Meeting of Stockholders on May 2, 2023, the Company granted a total of 12,480 unrestricted shares of the Company's common stock to its independent directors under the 2019 Plan with a grant date fair value per share of $60.10. The grant date fair value of the common stock was determined using the closing price of the Company’s common stock on the date of the grant. The Company recognized approximately $0.8 million in compensation costs for both the three and nine months ended September 30, 2023 related to this issuance.

The Company has a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) maintained for the benefit of select employees and members of the Company’s Board of Directors, in which certain of their cash and equity-based compensation may be deposited. Deferred Compensation Plan assets are held in a rabbi trust, which is subject to the claims of the Company’s creditors in the event of bankruptcy or insolvency. The shares held in the Deferred Compensation Plan are classified within stockholders’ equity in a manner similar to the manner in which treasury stock is classified. Subsequent changes in the fair value of the shares are not recognized. During both the three months ended September 30, 2023 and 2022, no shares of common stock were deposited into the Deferred Compensation Plan and during the nine months ended September 30, 2023 and 2022, 96,874 and 150,867 shares of common stock, respectively, were deposited into the Deferred Compensation Plan. During each of the three and nine months ended September 30, 2023 and 2022, no shares of common stock were withdrawn from the Deferred Compensation Plan.

As of September 30, 2023, there were 1,898,961 shares of common stock authorized for issuance as restricted stock grants, unrestricted stock awards or Performance Share awards under the 2019 Plan, of which 500,490 were remaining and available for issuance. The grant date fair value per share of restricted stock awards issued during the period from February 16, 2010 (commencement of operations) to September 30, 2023 ranged from $14.20 to $78.33. The fair value of the restricted stock that was granted during the nine months ended September 30, 2023 was approximately $8.2 million and the vesting period for the restricted stock is typically between one and five years. As of September 30, 2023, the Company had approximately $16.3 million of total unrecognized compensation costs related to restricted stock issuances, which is expected to be recognized over a remaining weighted average period of approximately 3.2 years. The Company recognized compensation costs of approximately $1.6 million and $4.6 million for the three and nine months ended September 30, 2023, respectively, and approximately $1.4 million and $3.6 million for the three and nine months ended September 30, 2022, respectively, related to the restricted stock issuances.

The following is a summary of the total restricted shares granted to the Company’s executive officers and employees with the related weighted average grant date fair value share prices for the nine months ended September 30, 2023:

Restricted Stock Activity:


	Shares	Weighted Average Grant Date Fair Value












Non-vested shares outstanding as of December 31, 2022	356,632	$	59.58
Granted	132,574	61.58
Forfeited	(6,989)	66.95
Vested	(62,717)	53.50
Non-vested shares outstanding as of September 30, 2023	419,500	$	61.00

The following is a vesting schedule of the total non-vested shares of restricted stock outstanding as of September 30, 2023:


Non-vested Shares Vesting Schedule						Number of Shares
2023 (3 months)						448
2024						116,167
2025						84,052
2026						62,146
2027						156,687
Thereafter						—
Total Non-vested Shares						419,500

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Long-Term Incentive Plan:

As of September 30, 2023, there were three open performance measurement periods for the Performance Share awards: January 1, 2021 to December 31, 2023, January 1, 2022 to December 31, 2024, and January 1, 2023 to December 31, 2025. During the nine months ended September 30, 2023, the Company issued 97,825 shares of common stock at a price of $58.56 per share related to the Performance Share awards for the performance period from January 1, 2020 to December 31, 2022.

The following table summarizes certain information with respect to the Performance Share awards granted on or after January 1, 2019 and includes the forfeiture of certain of the Performance Share awards during 2022 (dollars in thousands):


Performance Share Period	Fair Value on Date of Grant 1		Expense for the Three Months Ended September 30,				Expense for the Nine Months Ended September 30,
			2023		2022		2023		2022

January 1, 2020 - December 31, 2022	$	4,882	$	—	$	407	$	—	$	761
January 1, 2021 - December 31, 2023	4,820		402		402		1,206		991
January 1, 2022 - December 31, 2024	5,789		482		482		1,446		1,447
January 1, 2023 - December 31, 2025	9,040		753		—		2,259		—
Total	$	24,531	$	1,637	$	1,291	$	4,911	$	3,199

1 Reflects the fair value on date of grant for all performance shares outstanding at September 30, 2023.

Dividends:

The following table sets forth the cash dividends paid or payable per share during the nine months ended September 30, 2023:

For the Three Months Ended

Security

Dividend per Share

Declaration Date

Record Date

Date Paid

March 31, 2023

Common stock

0.40

February 7, 2023

March 31, 2023

April 6, 2023

June 30, 2023

Common Stock

0.40

May 2, 2023

June 30, 2023

July 14, 2023

September 30, 2023

Common Stock

0.45

August 1, 2023

September 29, 2023

October 13, 2023

Note 10. Net Income (Loss) Per Share

Pursuant to ASC 260-10-45, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share allocates earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. The Company’s non-vested shares of restricted stock are considered participating securities since these share-based awards contain non-forfeitable rights to dividends irrespective of whether the awards ultimately vest or expire. The Company had no antidilutive securities or dilutive restricted stock awards outstanding for the three and nine months ended September 30, 2023 and 2022.

In accordance with the Company’s policies of determining whether instruments granted in share-based payment transactions are participating securities and accounting for earnings per share, the net income (loss) per common share is adjusted for earnings 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 404,010 and 335,038 of weighted average unvested restricted shares outstanding for the three months ended September 30, 2023 and 2022, respectively, and 384,239 and 311,432 of weighted average unvested restricted shares outstanding for the nine months ended September 30, 2023 and 2022, respectively.

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Performance Share awards which may be payable in shares of the Company’s common stock after the conclusion of each pre-established performance measurement period are included as contingently issuable shares in the calculation of diluted weighted average common shares of stock outstanding assuming the reporting period is the end of the measurement period, and the effect is dilutive. Diluted shares related to the Performance Share awards were 225,327 and 93,518 for the three months ended September 30, 2023 and 2022, respectively, and 231,459 and 86,624 for the nine months ended September 30, 2023 and 2022, respectively.

Note 11. Commitments and Contingencies

Contractual Commitments. As of October 31, 2023, the Company had two outstanding contracts with third-party sellers to acquire two industrial properties for a total purchase price of approximately $9.6 million. There is no assurance that the Company will acquire the properties under contract because the proposed acquisitions are subject to due diligence and various closing conditions.

Note 12. Subsequent Events

On October 4, 2023, the Company sold one industrial property in Hanover, MD, for a total sales price of approximately $18.0 million (net book value of approximately $7.3 million). The property was held for sale as of September 30, 2023.

On October 10, 2023, the Company acquired one industrial property in Redondo Beach, CA, for a total purchase price of approximately $45.7 million. The property was acquired from an unrelated third party using existing cash on hand.

On October 11, 2023, the Company acquired one industrial property in Brooklyn, NY, for a total purchase price of approximately $27.5 million. The property was acquired from an unrelated third party using existing cash on hand and proceeds from dispositions.

On October 31, 2023, the Company’s board of directors declared a cash dividend in the amount of $0.45 per share of its common stock payable on January 5, 2024 to the stockholders of record as of the close of business on December 15, 2023.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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”, “potential”, “future” 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 ended December 31, 2022, which was filed with the Securities and Exchange Commission on February 8, 2023, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which was filed with the Securities and Exchange Commission on May 3, 2023, in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, which was filed with the Securities and Exchange Commission on August 2, 2023, in this Quarterly Report on Form 10-Q, and in our other public filings;

•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 own 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;

•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 (including rising inflation, supply chain disruptions and construction delays);

•the impact of any future pandemic, epidemic or outbreak of any highly infectious disease on the U.S., regional and global economies and on our business, financial condition and results of operations and that of 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;

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•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.

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 76.3% of our total annualized base rent as of September 30, 2023), flex (including light industrial and research and development, or R&D) (approximately 3.8%), transshipment (approximately 6.7%) and improved land (approximately 13.2%). We target functional properties 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, 2023, we owned a total of 257 buildings aggregating approximately 15.8 million square feet, 46 improved land parcels (including one improved land parcel held for sale) consisting of approximately 165.8 acres, eight properties under development or redevelopment and approximately 62.7 acres of land entitled for future development. As of September 30, 2023, our buildings and improved land parcels were approximately 98.3% and 96.3% leased, respectively, to 563 customers, the largest of which accounted for approximately 3.6% 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, 2022 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, commencing with our taxable year ended December 31, 2010.

The following table summarizes by type our investments in real estate as of September 30, 2023:


Type	Number of Buildings or Improved Land Parcels	Annualized Base Rent (in thousands) 1		% of Total
Warehouse/distribution	226	$	188,519	76.3	%
Flex	12	9,345		3.8	%
Transshipment	19	16,474		6.7	%
Improved land	46	32,572		13.2	%
Total	303	$	246,910	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, 2023, multiplied by 12.

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The following table summarizes by market our investments in real estate as of September 30, 2023:


	Los Angeles			Northern New Jersey/New York City			San Francisco Bay Area			Seattle			Miami			Washington, D.C.			Total/Weighted Average
Investments in Real Estate
Number of Buildings	54			43			56			44			37			23			257
Rentable Square Feet	2,779,646			2,625,675			3,040,273			2,782,510			2,815,678			1,795,020			15,838,802
% of Total	17.5		%	16.6		%	19.2		%	17.6		%	17.8		%	11.3		%	100.0		%
Occupancy % as of September 30, 2023	98.7		%	99.1		%	97.1		%	96.4		%	100.0		%	99.1		%	98.3		%
Annualized Base Rent (in thousands) 1	$	36,316		$	48,192		$	45,176		$	33,383		$	28,496		$	22,775		$	214,338
% of Total	16.9		%	22.5		%	21.1		%	15.6		%	13.3		%