Terreno Realty Corp [TRNO] Filings

10-Q 1 trno-20210930.htm 10-Q trno-20210930

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, 2021


☐			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 301 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, 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 71,318,411 shares of its common stock, $0.01 par value per share, outstanding as of November 1, 2021.

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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, 2021 and December 31, 2020	2
	Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020	3
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020	4
	Consolidated Statements of Equity for the nine months ended September 30, 2021 and 2020	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	7
	Condensed Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
SIGNATURES		45

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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, 2021		December 31, 2020
	(Unaudited)
ASSETS
Investments in real estate
Land	$	1,339,382	$	1,138,233
Buildings and improvements	1,051,571		942,688
Construction in progress	99,949		61,448
Intangible assets	101,175		88,859
Total investments in properties	2,592,077		2,231,228
Accumulated depreciation and amortization	(265,628)		(238,073)
Net investments in properties	2,326,449		1,993,155
Properties held for sale, net	18,302		—
Net investments in real estate	2,344,751		1,993,155
Cash and cash equivalents	68,732		107,180
Restricted cash	4,970		656

Other assets, net	53,050		38,829
Total assets	$	2,471,503	$	2,139,820
LIABILITIES AND EQUITY
Liabilities
Credit facility	$	—	$	—
Term loans payable, net	99,470		99,791
Senior unsecured notes, net	497,153		348,063
Mortgage loan payable, net	—		11,264
Security deposits	22,268		13,870
Intangible liabilities, net	37,543		24,608
Dividends payable	24,239		19,870
Performance share awards payable	—		7,482
Accounts payable and other liabilities	40,358		26,688
Total liabilities	721,031		551,636
Commitments and contingencies (Note 13)
Equity
Stockholders’ equity
Common stock: $0.01 par value, 400,000,000 shares authorized, and 71,015,523 and 68,376,364 shares issued and outstanding, at September 30, 2021 and December 31, 2020, respectively.	712		686
Additional paid-in capital	1,768,794		1,589,301
Common stock held in deferred compensation plan, 275,727 and 139,224 shares at September 30, 2021 and December 31, 2020, respectively.	(15,197)		(7,546)
Retained (deficit) earnings	(3,837)		5,926

Accumulated other comprehensive loss	—		(183)
Total stockholders’ equity	1,750,472		1,588,184
Total liabilities and equity	$	2,471,503	$	2,139,820

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,
	2021		2020		2021		2020
REVENUES
Rental revenues and tenant expense reimbursements	$	57,269	$	47,147	$	161,255	$	138,005

Total revenues	57,269		47,147		161,255		138,005
COSTS AND EXPENSES
Property operating expenses	14,200		12,228		40,883		36,070
Depreciation and amortization	13,636		12,124		36,980		34,683
General and administrative	6,800		5,130		19,248		16,553
Acquisition costs	—		123		172		186
Total costs and expenses	34,636		29,605		97,283		87,492
OTHER INCOME (EXPENSE)
Interest and other income	228		51		685		805
Interest expense, including amortization	(4,686)		(3,887)		(12,847)		(11,802)
Gain on sales of real estate investments	3,185		9,016		3,185		26,766
Total other income (expense)	(1,273)		5,180		(8,977)		15,769
Net income	21,360		22,722		54,995		66,282



Allocation to participating securities	(87)		(194)		(191)		(277)
Net income available to common stockholders	$	21,273	$	22,528	$	54,804	$	66,005
EARNINGS PER COMMON SHARE - BASIC AND DILUTED:
Net income available to common stockholders - basic	$	0.30	$	0.33	$	0.79	$	0.98
Net income available to common stockholders - diluted	$	0.30	$	0.33	$	0.79	$	0.97
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	70,516,787		68,112,661		69,571,511		67,600,957
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	70,752,863		68,372,515		69,799,206		67,860,811

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,
	2021		2020		2021		2020
Net income	$	21,360	$	22,722	$	54,995	$	66,282
Other comprehensive income:
Cash flow hedge adjustment	—		50		183		169
Comprehensive income	$	21,360	$	22,772	$	55,178	$	66,451

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, 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

Repurchase of common stock 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

Nine months ended September 30, 2020:


	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, 2019	67,252,787	$	673	$	1,514,266	—	$	—	$	2,621	$	(437)	$	1,517,123
Net income	—	—		—		—	—		12,856		—		12,856
Issuance of common stock, net of issuance costs of $426	562,521	4		29,647		—	—		—		—		29,651

Repurchase of common stock related to employee awards	(4,510)	—		(240)		—	—		—		—		(240)

Issuance of restricted stock	20,501	—		—		—	—		—		—		—
Stock-based compensation	—	—		1,573		—	—		—		—		1,573
Common stock dividends ($0.27 per share)	—	—		—		—	—		(18,314)		—		(18,314)
Deposits to deferred compensation plan	(135,494)	—		7,346		135,494	(7,346)		—		—		—
Other comprehensive income	—	—		—		—	—		—		73		73
Balance as of March 31, 2020	67,695,805	$	677	$	1,552,592	135,494	$	(7,346)	$	(2,837)	$	(364)	$	1,542,722
Net income	—	—		—		—	—		30,704		—		30,704
Issuance of common stock, net of issuance costs of $630	630,490	7		32,068		—	—		—		—		32,075
Forfeiture of common stock related to employee awards	(352)	—		—		—	—		—		—		—



Stock-based compensation	—	—		2,197		—	—		—		—		2,197
Common stock dividends ($0.27 per share)	—	—		—		—	—		(18,478)		—		(18,478)
Deposits to deferred compensation plan	(3,730)	—		200		3,730	(200)		—		—		—
Other comprehensive income	—	—		—		—	—		—		46		46
Balance as of June 30, 2020	68,322,213	$	684	$	1,587,057	139,224	$	(7,546)	$	9,389	$	(318)	$	1,589,266
Net income	—	—		—		—	—		22,722		—		22,722
Issuance of common stock, net of issuance costs of $70	8,250	—		424		—	—		—		—		424
Forfeiture of common stock related to employee awards	(4,794)	—		—		—	—		—		—		—
Repurchase of common stock related to employee awards	(149,865)	—		(9,597)		—	—		—		—		(9,597)

Issuance of restricted stock	57,540	—		—		—	—		—		—		—
Stock-based compensation	—	—		1,460		—	—		—		—		1,460
Common stock dividends ($0.29 per share)	—	—		—		—	—		(19,828)		—		(19,828)

Other comprehensive income	—	—		—		—	—		—		50		50
Balance as of September 30, 2020	68,233,344	$	684	$	1,579,344	139,224	$	(7,546)	$	12,283	$	(268)	$	1,584,497

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,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	54,995	$	66,282
Adjustments to reconcile net income to net cash provided by operating activities
Straight-line rents	(5,845)		1,051
Amortization of lease intangibles	(5,117)		(4,054)
Depreciation and amortization	36,980		34,683
Gain on sales of real estate investments	(3,185)		(26,766)
Deferred financing cost amortization	1,035		1,024
Deferred senior secured loan fee amortization	—		(57)
Stock-based compensation	7,007		6,353
Changes in assets and liabilities
Other assets	(1,913)		(3,678)
Accounts payable and other liabilities	14,484		2,530
Net cash provided by operating activities	98,441		77,368
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions	(325,039)		(46,780)
Proceeds from sales of real estate investments, net	9,596		70,685
Additions to construction in progress	(6,181)		(7,989)
Additions to buildings, improvements and leasing costs	(38,324)		(23,352)


Repayments on senior secured loan	—		15,915
Net cash (used in) provided by investing activities	(359,948)		8,479
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock	154,806		55,986
Issuance costs on issuance of common stock	(2,331)		(812)
Repurchase of common stock related to employee awards	(582)		(9,837)

Borrowings on credit facility	45,000		—
Payments on credit facility	(45,000)		—

Borrowings on senior unsecured notes	150,000		—
Payments on mortgage loan payable	(11,271)		(32,960)
Payment of deferred financing costs	(2,860)		—
Dividends paid to common stockholders	(60,389)		(54,949)

Net cash provided by (used in) financing activities	227,373		(42,572)
Net (decrease) increase in cash and cash equivalents and restricted cash	(34,134)		43,275
Cash and cash equivalents and restricted cash at beginning of period	107,836		112,739
Cash and cash equivalents and restricted cash at end of period	$	73,702	$	156,014
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest, net of capitalized interest	11,975		12,975
Supplemental disclosures of non-cash transactions
Accounts payable related to capital improvements	16,938		11,472
Non-cash issuance of common stock to the deferred compensation plan	(7,651)		(7,546)

Lease liability arising from recognition of right-of-use asset	424		460
Reconciliation of cash paid for property acquisitions
Acquisition of properties	344,452		47,577
Assumption of other assets and liabilities	(19,413)		(797)
Net cash paid for property acquisitions	$	325,039	$	46,780

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, 2021, the Company owned 241 buildings (including three buildings held for sale) aggregating approximately 14.1 million square feet, 31 improved land parcels consisting of approximately 114.7 acres and four properties under redevelopment expected to contain approximately 0.4 million square feet upon completion.

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, 2020, and the notes thereto, which was filed with the Securities and Exchange Commission on February 10, 2021.

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, 2021 or 2020.

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 $2.0 million and $1.2 million for the three months ended September 30, 2021 and 2020, respectively, and approximately $5.1 million and $4.1 million for the nine months ended September 30, 2021 and 2020, 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, 2021 was 7.2 years. As of September 30, 2021 and December 31, 2020, the Company’s intangible assets and liabilities, including properties held for sale (if any), consisted of the following (dollars in thousands):


	September 30, 2021						December 31, 2020
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
In-place leases	$	98,238	$	(70,266)	$	27,972	$	85,026	$	(64,668)	$	20,358
Above-market leases	3,841		(3,756)		85		3,833		(3,697)		136
Below-market leases	(62,778)		25,235		(37,543)		(45,798)		21,190		(24,608)
Total	$	39,301	$	(48,787)	$	(9,486)	$	43,061	$	(47,175)	$	(4,114)

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

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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,
	2021		2020
Beginning
Cash and cash equivalents at beginning of period	$	107,180	$	110,082
Restricted cash	656		2,657
Cash and cash equivalents and restricted cash	107,836		112,739
Ending
Cash and cash equivalents at end of period	68,732		155,324
Restricted cash	4,970		690
Cash and cash equivalents and restricted cash	73,702		156,014
Net (decrease) increase in cash and cash equivalents and restricted cash	$	(34,134)	$	43,275

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, 2021 and December 31, 2020, approximately $42.0 million and $32.5 million, respectively, of straight-line rent and accounts receivable, net of allowances of approximately $1.2 million and $0.9 million as of September 30, 2021 and December 31, 2020, 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 $10.3 million and $9.4 million as of September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, 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, 2021 include years 2017 to 2020 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 preestablished 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 on or after January 1, 2019 will be expressed as a number of shares of common stock and settled in shares of common stock. Target awards were previously expressed as a dollar amount and settled in shares of common stock. Commencing with Performance Share awards granted on or after January 1, 2019, the grant date fair value of the Performance Share awards will be determined under current accounting treatment using a Monte Carlo simulation model on the date of grant and recognized on a straight-line basis over the performance period. For Performance Share awards granted prior to January 1, 2019, the Company estimates the fair value of the Performance Share awards using a Monte Carlo simulation model on the date of grant and at each reporting period. The Performance Share awards granted prior to January 1, 2019 are recognized as compensation expense over the requisite performance period based on the fair value of the Performance Share awards at the balance sheet date, which varies

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quarter to quarter based on the Company’s relative share price performance, and are included as a component of performance share awards payable in the accompanying consolidated balance sheets.

Use of Derivative Financial Instruments. ASC 815, Derivatives and Hedging (See “Note 9 – Derivative Financial Instruments”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why the Company uses derivative instruments, (b) how the Company accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative 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. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Fair Value of Financial Instruments. ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) (See “Note 10 - 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, 2021, the Company owned 63 buildings aggregating approximately 3.6 million square feet and 10 land parcels consisting of approximately 54.1 acres located in Northern New Jersey/New York City, which accounted for a combined percentage of approximately 29.1% of its annualized base rent. Such annualized base rent percentages are based on contractual base rent from leases in effect as of September 30, 2021, 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, 2021.

Note 4. Investments in Real Estate

During the three months ended September 30, 2021, the Company acquired 10 industrial properties with a total initial

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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.

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.

During the three months ended September 30, 2020, the Company acquired one industrial property with a total initial investment, including acquisition costs, of approximately $6.5 million, of which $3.7 million was recorded to land, $2.3 million to buildings and improvements, and $0.5 million to intangible assets. Additionally, the Company assumed $0.1 million in liabilities.

During the nine months ended September 30, 2020, the Company acquired five industrial properties with a total initial investment, including acquisition costs, of approximately $47.6 million, of which $34.8 million was recorded to land, $11.0 million to buildings and improvements, and $1.8 million to intangible assets. Additionally, the Company assumed $0.7 million in liabilities.

The Company recorded revenues and net income for the three months ended September 30, 2020 of approximately $0.8 million and $0.4 million, respectively, and recorded revenues and net income for the nine months ended September 30, 2020 of approximately $1.5 million and $0.7 million, respectively, related to the 2020 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, 2021, the Company had four properties under redevelopment expected to contain approximately 0.4 million square feet upon completion with a total expected investment of approximately $117.8 million, including redevelopment costs, capitalized interest and other costs. The Company capitalized interest associated with redevelopment and expansion activities of approximately $0.2 million and $0.4 million during the three months ended September 30, 2021 and 2020, respectively, and approximately $0.3 million and $1.5 million during the nine months ended September 30, 2021 and 2020, respectively.

Note 5. Held for Sale/Disposed Assets

As of September 30, 2021, the Company had entered into an agreement with a third-party purchaser to sell one property located in the New Jersey market for a sales price of approximately $32.7 million (net book value of approximately $18.3 million). The sale of the property is subject to various closing conditions.

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.

During the nine months ended September 30, 2020, the Company sold three properties located in the Washington, D.C. market for a total aggregate sales price of approximately $51.3 million, resulting in a gain of approximately $17.8 million, and one property located in the Miami market for a sales price of approximately $22.2 million, resulting in a gain of approximately $9.0 million.

Note 6. Senior Secured Loan

The Company had a senior secured loan outstanding to a borrower that bore interest at a fixed annual interest rate of 8.0% and was fully repaid in May 2020. The senior secured loan was secured by a portfolio of six improved land parcels located primarily in Newark, New Jersey.

Note 7. Debt

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As of September 30, 2021, the Company had $50.0 million of senior unsecured notes that mature in September 2022, $100.0 million of senior unsecured notes that mature in July 2024, $50.0 million of senior unsecured notes that mature in July 2026, $50.0 million of senior unsecured notes that mature in October 2027, $100.0 million of senior unsecured notes that mature in July 2028, $100.0 million of senior unsecured notes that mature in December 2029 and $50.0 million of senior unsecured notes that mature in July 2031 (collectively, the “Senior Unsecured Notes”).

On August 20, 2021, a subsidiary of the Company entered into a Sixth Amended and Restated Senior Credit Agreement (the “Amended Facility”) which consists of a $250.0 million revolving credit facility that matures in August 2025 (previously October 2022) and a $100.0 million term loan that matures in January 2027 (previously January 2022). Among other things, the Amended Facility extended the maturity date of the revolving credit facility and the $100.0 million term loan. As of both September 30, 2021 and December 31, 2020, there were no borrowings outstanding on the revolving credit facility and $100.0 million of borrowings outstanding on the term loan. As of September 30, 2021, the Company had no interest rate caps. As of December 31, 2020, the Company had one interest rate cap to hedge the variable cash flows associated with $50.0 million of its $100.0 million variable-rate term loan, which expired on May 4, 2021. See “Note 9 - Derivative Financial Instruments” for more information regarding the Company’s interest rate cap.

The aggregate amount of the Amended Facility may be increased to a total of up to $650.0 million, subject to the approval of the administrative agent and the identification of lenders willing to make available additional amounts. Outstanding borrowings under the Amended Facility are limited to the lesser of (i) the sum of the $100.0 million term loan and the $250.0 million revolving credit facility, or (ii) 60.0% of the value of the unencumbered properties. Interest on the Amended Facility, including the term loan, is generally to be paid based upon, at the Company’s option, either (i) LIBOR plus the applicable LIBOR margin or (ii) the applicable base rate which is the greatest of the administrative agent’s prime rate, 0.50% above the federal funds effective rate, or thirty-day LIBOR plus the applicable LIBOR margin for LIBOR rate loans under the Amended Facility plus 1.25%. The applicable LIBOR margin will range from 1.00% to 1.45% (1.00% as of September 30, 2021) for the revolving credit facility (previously 1.05% to 1.50%) and 1.15% to 1.65% (1.15% as of September 30, 2021) for the $100.0 million term loan (previously 1.20% to 1.70%), 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 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, 2021 and December 31, 2020.

During the nine months ended September 30, 2021, the Company fully repaid its $11.3 million mortgage loan payable. As of December 31, 2020, this mortgage loan payable, net of deferred financing costs, totaled approximately $11.3 million, and bore interest at a weighted average fixed annual rate of 5.5%. The mortgage loan payable was collateralized by one property. As of December 31, 2020, the total gross book value of the property securing the debt was approximately $32.7 million. As of September 30, 2021, the Company did not have any encumbered properties.

The scheduled principal payments of the Company’s debt as of September 30, 2021 were as follows (dollars in thousands):


	Credit Facility		Term Loan		Senior Unsecured Notes		Total Debt
2021 (3 months)	$	—	$	—	$	—	$	—
2022	—		—		50,000		50,000
2023	—		—		—		—
2024	—		—		100,000		100,000
2025	—		—		—		—
Thereafter	—		100,000		350,000		450,000
Total debt	—