Terreno Realty Corp [TRNO] Filings

10-Q 1 trno-20220930.htm 10-Q trno-20220930

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, 2022


☐			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

10500 NE 8th Street, Suite 301 Bellevue, WA 98004

(Former Address of Principal Executive Offices)

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 76,066,729 shares of its common stock, $0.01 par value per share, outstanding as of October 31, 2022.

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, 2022 and December 31, 2021	2
	Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	3
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021	4
	Consolidated Statements of Equity for the nine months ended September 30, 2022 and 2021	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	6
	Condensed Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
SIGNATURES		44

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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, 2022		December 31, 2021
	(unaudited)
ASSETS
Investments in real estate
Land	$	1,806,657	$	1,556,952
Buildings and improvements	1,363,240		1,210,591
Construction in progress	44,320		65,157
Intangible assets	125,715		114,126
Total investments in properties	3,339,932		2,946,826
Accumulated depreciation and amortization	(310,496)		(279,062)
Net investments in properties	3,029,436		2,667,764
Properties held for sale, net	10,198		—
Net investments in real estate	3,039,634		2,667,764
Cash and cash equivalents	10,153		204,404
Restricted cash	844		397

Other assets, net	58,043		51,650
Total assets	$	3,108,674	$	2,924,215
LIABILITIES AND EQUITY
Liabilities
Credit facility	$	10,000	$	—
Term loans payable, net	198,939		99,495
Senior unsecured notes, net	571,676		621,175

Security deposits	27,247		23,914
Intangible liabilities, net	60,478		51,025
Dividends payable	30,427		25,618

Accounts payable and other liabilities	57,814		45,025
Total liabilities	956,581		866,252
Commitments and contingencies (Note 12)
Equity
Stockholders’ equity
Common stock: $0.01 par value, 400,000,000 shares authorized, and 75,640,135 and 75,068,575 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively.	757		752
Additional paid-in capital	2,118,173		2,069,604
Common stock held in deferred compensation plan, 426,594 and 275,727 shares at September 30, 2022 and December 31, 2021, respectively.	(26,982)		(15,197)
Retained earnings	60,145		2,804


Total stockholders’ equity	2,152,093		2,057,963
Total liabilities and equity	$	3,108,674	$	2,924,215

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,
	2022		2021		2022		2021
REVENUES
Rental revenues and tenant expense reimbursements	$	70,801	$	57,269	$	200,205	$	161,255

Total revenues	70,801		57,269		200,205		161,255
COSTS AND EXPENSES
Property operating expenses	17,140		14,200		49,820		40,883
Depreciation and amortization	16,957		13,636		47,227		36,980
General and administrative	8,139		6,800		22,999		19,248
Acquisition costs and other	36		—		1,091		172
Total costs and expenses	42,272		34,636		121,137		97,283
OTHER INCOME (EXPENSE)
Interest and other income	175		228		411		685
Interest expense, including amortization	(6,265)		(4,686)		(16,393)		(12,847)

Gain on sales of real estate investments	—		3,185		76,048		3,185
Total other income (expense)	(6,090)		(1,273)		60,066		(8,977)
Net income	22,439		21,360		139,134		54,995



Allocation to participating securities	(107)		(87)		(583)		(191)
Net income available to common stockholders	$	22,332	$	21,273	$	138,551	$	54,804
EARNINGS PER COMMON SHARE - BASIC AND DILUTED:
Net income available to common stockholders - basic	$	0.30	$	0.30	$	1.84	$	0.79
Net income available to common stockholders - diluted	$	0.30	$	0.30	$	1.84	$	0.79
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	75,495,232		70,516,787		75,316,222		69,571,511
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	75,588,750		70,752,863		75,402,846		69,799,206

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

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Terreno Realty Corporation

Consolidated Statements of Comprehensive Income

(in thousands)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	22,439	$	21,360	$	139,134	$	54,995
Other comprehensive income:
Cash flow hedge adjustment	—		—		—		183
Comprehensive income	$	22,439	$	21,360	$	139,134	$	55,178

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, 2022:


	Common Stock			Additional Paid- in Capital		Common Shares Held in Deferred Compensation Plan	Deferred Compensation Plan		Retained (Deficit) Earnings		Accumulated Other Comprehensive Loss
	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)	—		—		—	—		—		—		—



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	75,108,342	$	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	95,648	—		—		—	—		—		—		—
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

Nine months ended September 30, 2021:


	Common Stock			Additional Paid- in Capital		Common Shares Held in Deferred Compensation Plan	Deferred Compensation Plan		Retained (Deficit) Earnings		Accumulated Other Comprehensive Loss
	Number of Shares	Amount											Total
Balance as of December 31, 2020	68,376,364	$	686	$	1,589,301	139,224	$	(7,546)	$	5,926	$	(183)	$	1,588,184
Net income	—	—		—		—	—		16,257		—		16,257
Issuance of common stock, net of issuance costs of $731	837,846	7		47,866		—	—		—		—		47,873

Common shares acquired related to employee awards	(6,534)	—		(582)		—	—		—		—		(582)

Issuance of restricted stock	25,654	—		—		—	—		—		—		—
Stock-based compensation	—	—		1,970		—	—		—		—		1,970
Common stock dividends ($0.29 per share)	—	—		—		—	—		(20,091)		—		(20,091)
Deposits to deferred compensation plan	(131,322)	—		7,321		131,322	(7,321)		—		—		—
Other comprehensive income	—	—		—		—	—		—		106		106
Balance as of March 31, 2021	69,102,008	$	693	$	1,645,876	270,546	$	(14,867)	$	2,092	$	(77)	$	1,633,717
Net income	—	—		—		—	—		17,378		—		17,378
Issuance of common stock, net of issuance costs of $1,228	1,094,656	11		68,382		—	—		—		—		68,393
Forfeiture of common stock related to employee awards	(85)	—		—		—	—		—		—		—



Stock-based compensation	—	—		2,677		—	—		—		—		2,677
Common stock dividends ($0.29 per share)	—	—		—		—	—		(20,428)		—		(20,428)
Deposits to deferred compensation plan	(5,181)	—		330		5,181	(330)		—		—		—
Other comprehensive income	—	—		—		—	—		—		77		77
Balance as of June 30, 2021	70,191,398	$	704	$	1,717,265	275,727	$	(15,197)	$	(958)	$	—	$	1,701,814
Net income	—	—		—		—	—		21,360		—		21,360
Issuance of common stock, net of issuance costs of $807	751,539	8		49,169		—	—		—		—		49,177



Issuance of restricted stock	72,586	—		—		—	—		—		—		—
Stock-based compensation	—	—		2,360		—	—		—		—		2,360
Common stock dividends ($0.34 per share)	—	—		—		—	—		(24,239)		—		(24,239)


Balance as of September 30, 2021	71,015,523	$	712	$	1,768,794	275,727	$	(15,197)	$	(3,837)	$	—	$	1,750,472

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,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	139,134	$	54,995
Adjustments to reconcile net income to net cash provided by operating activities
Straight-line rents	(7,326)		(5,845)
Amortization of lease intangibles	(10,807)		(5,117)
Depreciation and amortization	47,227		36,980

Gain on sales of real estate investments	(76,048)		(3,185)
Deferred financing cost amortization	988		1,035

Stock-based compensation	7,518		7,007
Changes in assets and liabilities
Other assets	543		(1,913)
Accounts payable and other liabilities	7,790		14,484
Net cash provided by operating activities	109,019		98,441
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions	(344,833)		(325,039)
Proceeds from sales of real estate investments, net	106,835		9,596
Additions to construction in progress	(24,978)		(6,181)
Additions to buildings, improvements and leasing costs	(50,827)		(38,324)



Net cash used in investing activities	(313,803)		(359,948)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock	30,941		154,806
Issuance costs on issuance of common stock	(468)		(2,331)
Repurchase of common stock related to employee awards	(1,011)		(582)




Borrowings on credit facility	162,000		45,000
Payments on credit facility	(152,000)		(45,000)
Borrowings on term loans payable	100,000		—

Borrowings on senior unsecured notes	—		150,000
Payments on senior unsecured notes	(50,000)		—

Payments on mortgage loan payable	—		(11,271)
Payment of deferred financing costs	(1,498)		(2,860)
Dividends paid to common stockholders	(76,984)		(60,389)

Net cash provided by financing activities	10,980		227,373
Net decrease in cash and cash equivalents and restricted cash	(193,804)		(34,134)
Cash and cash equivalents and restricted cash at beginning of period	204,801		107,836
Cash and cash equivalents and restricted cash at end of period	$	10,997	$	73,702
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest, net of capitalized interest	$	19,572	$	11,975
Supplemental disclosures of non-cash transactions
Accounts payable related to capital improvements	22,861		16,938
Non-cash issuance of common stock to the deferred compensation plan	(11,785)		(7,651)


Lease liability arising from recognition of right-of-use asset	—		424


Acquisition of properties	$	360,818	$	344,452
Assumption of other assets and liabilities	(15,985)		(19,413)
Net cash paid for property acquisitions	$	344,833	$	325,039

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, 2022, the Company owned 252 buildings (including two buildings held for sale) aggregating approximately 15.4 million square feet, 46 improved land parcels consisting of approximately 159.9 acres and two properties under redevelopment that, upon completion, will consist of two improved land parcels aggregating approximately 12.1 acres.

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, 2021 and the notes thereto, which was filed with the Securities and Exchange Commission on February 9, 2022.

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, 2022 or 2021.

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 $4.2 million and $2.0 million for the three months ended September 30, 2022 and 2021, respectively, and approximately $10.8 million and $5.1 million for the nine months ended September 30, 2022 and 2021, 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, 2022 was 6.5 years. As of September 30, 2022 and December 31, 2021, the Company’s intangible assets and liabilities, including properties held for sale, consisted of the following (dollars in thousands):


	September 30, 2022						December 31, 2021
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
In-place leases	$	122,121	$	(81,005)	$	41,116	$	110,351	$	(72,266)	$	38,085
Above-market leases	3,594		(3,559)		35		3,775		(3,706)		69
Below-market leases	(97,675)		37,197		(60,478)		(78,753)		27,728		(51,025)
Total	$	28,040	$	(47,367)	$	(19,327)	$	35,373	$	(48,244)	$	(12,871)

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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,
	2022		2021
Beginning
Cash and cash equivalents at beginning of period	$	204,404	$	107,180
Restricted cash	397		656
Cash and cash equivalents and restricted cash	204,801		107,836
Ending
Cash and cash equivalents at end of period	10,153		68,732
Restricted cash	844		4,970
Cash and cash equivalents and restricted cash	10,997		73,702
Net decrease in cash and cash equivalents and restricted cash	$	(193,804)	$	(34,134)

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 on-going 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, 2022 and December 31, 2021, approximately $44.1 million and $39.7 million, respectively, of straight-line rent and accounts receivable, net of allowances of approximately $0.7 million and $0.5 million as of September 30, 2022 and December 31, 2021, 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 $11.5 million and $10.6 million as of September 30, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, 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, 2022, include years 2018 to 2021 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.

Use of Derivative Financial Instruments. The Company records all derivatives on the accompanying consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

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Fair Value of Financial Instruments. ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) (See “Note 9 - 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, 2022, the Company owned 44 buildings aggregating approximately 2.9 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 24.2% of its annualized base rent. Such annualized base rent percentages are based on contractual base rent from leases in effect as of September 30, 2022, excluding any partial or full rent abatements.

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, 2022.

Note 4. Investments in Real Estate

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.

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.

During the three months ended September 30, 2021, the Company acquired ten industrial properties with a total initial investment, including acquisition costs, of approximately $176.8 million, of which $127.3 million was recorded to land, $42.1 million to buildings and improvements, and $7.4 million to intangible assets. Additionally, the Company assumed $11.7 million in liabilities.

During the nine months ended September 30, 2021, the Company acquired 20 industrial properties with a total initial investment, including acquisition costs, of approximately $344.5 million, of which $235.0 million was recorded to land, $93.7 million to buildings and improvements, and $15.8 million to intangible assets. Additionally, the Company assumed $19.5 million in liabilities.

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The Company recorded revenues and net income for the three months ended September 30, 2021 of approximately $3.7 million and $1.3 million, respectively, and recorded revenues and net income for the nine months ended September 30, 2021 of approximately $6.2 million and $2.3 million, respectively, related to the 2021 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 and the issuance of common stock and borrowings on the revolving credit facility.

As of September 30, 2022, the Company had two properties under redevelopment that, upon completion, will consist of two improved land parcels aggregating approximately 12.1 acres. The following table summarizes certain information with respect to the properties under redevelopment as of September 30, 2022:


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


Berryessa	San Jose, CA	$	25,961	7.2
Paterson Plank III	Carlstadt, NJ	25,303		4.9
Total/Weighted Average		$	51,264	12.1

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.

During 2022, the Company completed redevelopment of three properties aggregating approximately 0.6 million square feet. The following table summarizes certain information with respect to the completed redevelopment properties as of September 30, 2022:


Property Name	Location	Total Investment (in thousands) 1		Square Feet	Completion Quarter
America's Gateway	Miami, FL	$	7,500	128,844	Q1 2022
Countyline #29 & #30	Hialeah, FL	75,539		407,084	Q2/Q3 2022
73rd Street	Miami, FL	20,200		51,800	Q3 2022
Total/Weighted Average		$	103,239	587,728

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

The Company capitalized interest associated with redevelopment and expansion activities of approximately $2.2 million and $0.3 million during the nine months ended September 30, 2022 and 2021, respectively.

Note 5. Held for Sale/Disposed Assets

As of September 30, 2022, the Company had entered into agreements with third-party purchasers to sell one property located in the Northern New Jersey/New York City market for a sales price of approximately $26.5 million (net book value of approximately $7.3 million) and one property located in the Seattle market for a sales price of approximately $8.7 million (net book value of approximately $2.9 million). There is no assurance that the sales of these properties will be effected, as they are subject to various closing conditions.

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.

During the nine months ended September 30, 2021, the Company sold one property located in the Seattle market for a sales price of approximately $10.3 million, resulting in a gain of approximately $3.2 million.

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Note 6. Debt

The following table summarizes the components of the Company’s indebtedness as of September 30, 2022 and December 31, 2021 (dollars in thousands). The Company has no secured debt:


	September 30, 2022		December 31, 2021		Margin Above SOFR	Interest Rate 1		Contractual Maturity Date

Unsecured Debt:
Unsecured Debt:
Credit Facility	$	10,000	$	—	1.1% 2	3.9	%	8/20/2025
5-Year Term Loan	100,000		100,000		1.3% 2	4.3	%	1/15/2027