Terreno Realty Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We caution investors that forward-looking statements are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “project”, “result”, “should”, “will”, “seek”, “target”, “see”, “likely”, “position”, “opportunity”, “outlook” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends. Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • the factors included under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on February 6, 2020, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which was filed with the Securities and Exchange Commission on May 6, 2020, in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which was filed with the Securities and Exchange Commission on August 5, 2020, and in our other public filings, which you should interpret as being heightened as a result of the numerous and ongoing adverse impacts of COVID-19; • our ability to identify and acquire industrial properties on terms favorable to us; • general volatility of the capital markets and the market price of our common stock; • adverse economic or real estate conditions or developments in the industrial real estate sector and/or in the markets in which we acquire properties; • our dependence on key personnel and our reliance on third-party property managers; • our inability to comply with the laws, rules and regulations applicable to companies, and in particular, public companies; • our ability to manage our growth effectively; • tenant bankruptcies and defaults on or non-renewal of leases by tenants; • decreased rental rates or increased vacancy rates; • increased interest rates and operating costs; • the potential discontinuation of London Interbank Offered Rate (“LIBOR”); • declining real estate valuations and impairment charges; • our expected leverage, our failure to obtain necessary outside financing, and existing and future debt service obligations; • our ability to make distributions to our stockholders; • our failure to successfully hedge against interest rate increases; • our failure to successfully operate acquired properties; • risks relating to our real estate redevelopment, renovation and expansion strategies and activities; • the ongoing impact of COVID-19 on the U.S., regional and global economies and the business, financial condition and results of operations of our Company and our tenants; • our failure to qualify or maintain our status as a real estate investment trust (“REIT”), and possible adverse changes to tax laws; 21 Table of Contents • uninsured or underinsured losses and costs relating to our properties or that otherwise result from future litigation; • environmental uncertainties and risks related to natural disasters; • financial market fluctuations; and • changes in real estate and zoning laws and increases in real property tax rates. Overview Terreno Realty Corporation (“Terreno”, and together with its subsidiaries, “we”, “us”, “our”, “our Company”, or “the Company”) acquires, owns and operates industrial real estate in six major coastal U.S. markets: Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami, and Washington, D.C. We invest in several types of industrial real estate, including warehouse/distribution (approximately 82.2% of our annualized base rent as of September 30, 2020), flex buildings (including light industrial and research and development, or R&D, approximately 5.2%), transshipment (approximately 5.3%), and improved land parcels (approximately 7.3%). We target functional buildings in infill locations that may be shared by multiple tenants and that cater to customer demand within the various submarkets in which we operate. Infill locations are geographic locations surrounded by high concentrations of already developed land and existing buildings. As of September 30, 2020, we owned a total of 219 buildings aggregating approximately 13.1 million square feet, 22 improved land parcels consisting of approximately 85.0 acres and one property under redevelopment expected to contain approximately 0.2 million square feet upon completion. As of September 30, 2020, the buildings and improved land parcels were approximately 97.3% and 98.5% leased, respectively, to 476 customers, the largest of which accounted for approximately 5.5% of our total annualized base rent. See “Item 1 – Our Investment Strategy – Industrial Facility General Characteristics” in our Annual Report on Form 10-K for the year ended December 31, 2019 for a general description of these types of industrial real estate. We are an internally managed Maryland corporation and elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Code, commencing with our taxable year ended December 31, 2010. The following table summarizes by type our investments in real estate as of September 30, 2020: Type Number of Buildings or Improved Land Parcels Annualized Base Rent (000's) 1 % of Total Warehouse/distribution 195 $ 120,072 82.2 % Flex 10 7,595 5.2 % Transshipment 14 7,667 5.3 % Improved land 22 10,589 7.3 % Total/Weighted Average 241 $ 145,923 100.0 % 1 Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of September 30, 2020, multiplied by 12. 22 Table of Contents The following table summarizes by market our investments in real estate as of September 30, 2020: Los Angeles Northern New Jersey/New York City San Francisco Bay Area Seattle Miami Washington, D.C. Total/Weighted Average Investments in Real Estate Number of Buildings 41 62 41 30 27 18 219 Rentable Square Feet 2,560,682 3,552,681 2,055,656 2,059,315 1,370,872 1,534,625 13,133,831 % of Total 19.5 % 27.0 % 15.7 % 15.7 % 10.4 % 11.7 % 100.0 % Occupancy % as of September 30, 2020 98.8 % 94.5 % 97.4 % 98.8 % 99.6 % 97.4 % 97.3 % Annualized Base Rent (000’s) 1 $ 23,526 $ 37,077 $ 26,317 $ 19,161 $ 12,802 $ 16,451 $ 135,334 % of Total 17.4 % 27.4 % 19.3 % 14.2 % 9.5 % 12.2 % 100.0 % Annualized Base Rent 1 Per Occupied Square Foot $ 9.30 $ 11.05 $ 13.15 $ 9.42 $ 9.38 $ 11.01 $ 10.59 Weighted Average Remaining Lease Term (Years) 2 6.5 4.4 3.6 3.9 3.7 3.6 4.4 Investments in Improved Land Number of Land Parcels 6 9 2 2 2 1 22 Acres 11.9 48.8 4.0 3.7 3.2 13.4 85.0 % of Total 14.0 % 57.5 % 4.7 % 4.4 % 3.7 % 15.7 % 100.0 % Occupancy % as of September 30, 2020 100.0 % 100.0 % 68.1 % 100.0 % 100.0 % 100.0 % 98.5 % Annualized Base Rent (000’s) 1 $ 2,590 $ 5,563 $ 647 $ 552 $ 394 $ 843 $ 10,589 % of Total 24.5 % 52.5 % 6.1 % 5.2 % 3.7 % 8.0 % 100.0 % Annualized Base Rent 1 Per Occupied Square Foot $ 4.98 $ 2.67 $ 5.50 $ 3.72 $ 2.85 $ 1.45 $ 2.94 Weighted Average Remaining Lease Term (Years) 2 4.4 5.0 1.4 3.0 3.0 9.3 5.4 Total Investments in Real Estate Annualized Base Rent (000’s) 1 $ 26,116 $ 42,640 $ 26,964 $ 19,713 $ 13,196 $ 17,294 $ 145,923 Gross Book Value (000’s) 3 $ 428,875 $ 647,231 $ 391,097 $ 335,656 $ 153,006 $ 216,802 $ 2,172,667 % of Total Gross Book Value 19.7 % 29.8 % 18.0 % 15.4 % 7.1 % 10.0 % 100.0 % 1 Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of September 30, 2020, multiplied by 12. 2 Weighted average remaining lease term is calculated by summing the remaining lease term of each lease as of September 30, 2020, weighted by the respective square footage. 3 Includes one property under redevelopment expected to contain approximately 0.2 million square feet upon completion, as discussed below. As of September 30, 2020, we owned one property under redevelopment expected to contain approximately 0.2 million square feet upon completion with a total expected investment of approximately $63.3 million including redevelopment costs, capitalized interest and other costs of approximately $61.2 million. 23 Table of Contents The following table summarizes our capital expenditures incurred during the three and nine months ended September 30, 2020 and 2019 (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Building improvements $ 4,507 $ 3,772 $ 12,101 $ 13,214 Tenant improvements 677 474 1,705 2,401 Leasing commissions 5,284 1,488 9,710 4,589 Redevelopment, renovation and expansion 3,184 7,460 6,761 23,632 Total capital expenditures 1 $ 13,652 $ 13,194 $ 30,277 $ 43,836 1 Includes approximately $6.5 million and $9.5 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $15.4 million and $31.7 million for the nine months ended September 30, 2020 and 2019, respectively, related to leasing acquired vacancy, redevelopment construction in progress and renovation and expansion projects (stabilization capital) at 13 and 12 properties for the three months ended September 30, 2020 and 2019, respectively, and at 14 and 15 properties for the nine months ended September 30, 2020 and 2019, respectively. Our industrial properties are typically subject to leases on a “triple net basis,” in which tenants pay their proportionate share of real estate taxes, insurance and operating costs, or are subject to leases on a “modified gross basis,” in which tenants pay expenses over certain threshold levels. In addition, approximately 92.7% of our leased space includes fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years. We monitor the liquidity and creditworthiness of our tenants on an on-going basis by reviewing outstanding accounts receivable balances, and as provided under the respective lease agreements, review the tenant’s financial condition periodically as appropriate. As needed, we hold discussions with the tenant’s management about their business and we conduct site visits of the tenant’s operations. Our top 20 customers based on annualized base rent as of September 30, 2020 are as follows: Customer Leases Rentable Square Feet % of Total Rentable Square Feet Annualized Base Rent (000’s) 1 % of Total Annualized Base Rent 1 Amazon.com 2 5 471,880 3.6 % $ 8,060 5.5 % 2 FedEx Corporation 3 7 314,519 2.4 % 5,111 3.5 % 3 United States Government 8 300,732 2.3 % 3,748 2.6 % 4 Danaher 3 171,707 1.3 % 3,732 2.6 % 5 District of Columbia 6 217,571 1.7 % 3,061 2.0 % 6 DirectBuy Home Improvement 1 230,891 1.8 % 1,915 1.3 % 7 Costco-Innovel Solutions LLC 1 219,910 1.7 % 1,816 1.2 % 8 XPO Logistics 2 180,717 1.4 % 1,732 1.2 % 9 L3 Harris Technologies, Inc. 1 147,898 1.1 % 1,651 1.1 % 10 Topaz Lighting Corp. 1 190,000 1.4 % 1,463 1.0 % 11 O'Neill Logistics 2 237,692 1.8 % 1,458 1.0 % 12 Port Kearny Security, Inc 4 1 — — % 1,458 1.0 % 13 YRC 2 61,252 0.5 % 1,423 1.0 % 14 Envogue International 1 192,000 1.5 % 1,411 1.0 % 15 Bar Logistics 2 203,263 1.5 % 1,393 1.0 % 16 Lilac Solutions Inc. 1 92,884 0.7 % 1,338 0.9 % 17 Saia Motor Freight Line LLC 1 52,086 0.4 % 1,280 0.9 % 18 Space Systems/Loral LLC 2 107,060 0.8 % 1,246 0.9 % 19 JAM'N Logistics 1 110,336 0.8 % 1,229 0.8 % 20 Fredmore Inc. DBA Airpark Newark 5 2 — — % 1,206 0.8 % Total 50 3,502,398 26.7 % $ 45,731 31.3 % 1 Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of September 30, 2020, multiplied by 12. 24 Table of Contents 2 Includes an improved land parcel consisting of 2.8 acres. 3 Includes two improved land parcels totaling 7.7 acres. 4 Lease area consists of 16.9 acres of improved land. 5 Lease area consists of 10.6 acres of improved land. The following table summarizes the anticipated lease expirations for leases in place as of September 30, 2020, without giving effect to the exercise of unexercised renewal options or termination rights, if any, at or prior to the scheduled expirations: Year Rentable Square Feet % of Total Rentable Square Feet Annualized Base Rent (000’s) 2, 3 % of Total Annualized Base Rent 2020 1 371,484 2.8 % 3,362 2.1 % 2021 2,218,355 16.9 % 21,353 13.1 % 2022 1,625,440 12.4 % 18,082 11.1 % 2023 1,822,793 13.9 % 23,090 14.2 % 2024 1,576,607 12.0 % 21,585 13.3 % Thereafter 5,166,063 39.3 % 75,424 46.2 % Total 12,780,742 97.3 % 162,896 100.0 % 1 Includes leases that expire on or after September 30, 2020 and month-to-month leases totaling approximately 67,877 square feet. 2 Annualized base rent is calculated as contractual monthly base rent per the leases at expiration, excluding any partial or full rent abatements, as of September 30, 2020, multiplied by 12. 3 Includes annualized base rent related to 22 improved land parcels totaling approximately 85.0 acres. Our ability to re-lease or renew expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. As of September 30, 2020, leases representing approximately 15.2% of the total annualized base rent of our portfolio are scheduled to expire through December 31, 2021. We currently expect that, on average, the rental rates we are likely to achieve on new (re-leased) or renewed leases for our 2020 and 2021 expirations will be above the rates currently being paid for the same space. Rent changes on new and renewed leases totaling approximately 0.9 million square feet commencing during the three months ended September 30, 2020 were approximately 20.3% higher as compared to the previous rental rates for that same space, and rent changes on new and renewed leases totaling approximately 2.0 million square feet commencing during the nine months ended September 30, 2020 were approximately 25.2% higher as compared to the previous rental rates for that same space. We had a tenant retention ratio of 59.6% and 54.9%, respectively, for the three and nine months ended September 30, 2020. Our past performance may not be indicative of future results, and we cannot assure you that leases will be renewed or that our properties will be re-leased at all or at rental rates equal to or above the current average rental rates, particularly given the current leasing environment has slowed due to shelter-in-place orders and other mitigation efforts put in place in connection with COVID-19, which will reduce revenue from what it would be in a normal leasing environment. Further, re-leased/renewed rental rates in a particular market may not be consistent with rental rates across our portfolio as a whole and re-leased/renewed rental rates for particular properties within a market may not be consistent with rental rates across our portfolio within a particular market, in each case due to a number of factors, including local real estate conditions, local supply and demand for industrial space, the condition of the property, the impact of leasing incentives, including free rent and tenant improvements and whether the property, or space within the property, has been redeveloped. Recent Developments COVID-19 The COVID-19 pandemic, and mitigation measures put in place by governments to slow it, have caused significant economic disruption. We are headquartered in San Francisco and our employees have been working remotely in accordance with recommendations by the City of San Francisco since March 2020. We utilize local, third-party property managers, and they are generally working remotely, as recommended by their municipalities. We have business continuity and communication plans that have allowed, and we believe, although there can be no assurance, will continue to allow us to operate and manage our portfolio effectively during such disruptions. We expect that we will, for the intermediate term, employ lower density work arrangements consistent with social distancing and our business continuity plan. While the impact of the COVID-19 pandemic on our business is not possible to predict accurately, we continue to work 25 Table of Contents with our customers who have been forced to close or otherwise limit operations or whose businesses have been adversely impacted during the COVID-19 pandemic to, on a case-by-case basis, provide rent deferments. Through November 3, 2020, we have granted rent deferrals to 59 tenants aggregating approximately 2.6% of annualized base rent. No rent abatements were granted. For the 59 rent deferrals granted: • 13 tenants aggregating 0.1% of annualized base rent (5.4% of total deferrals) have completed their rent deferral period and have fully repaid the deferral amounts; • 34 tenants aggregating 2.2% of annualized base rent (82.3% of total deferrals) have not completed their rent deferral repayment period and are fulfilling the terms of their deferral agreements; and • 12 tenants aggregating 0.3% of annualized base rent (12.3% of total deferrals) have defaulted on their rent deferral repayments. The acquisition and disposition markets slowed in the early months of the COVID-19 pandemic as market participants searched for price discovery. While transaction markets returned to more normal volumes recently, our acquisition volume will remain dependent on both the quality and pricing of the opportunity set and the price of our stock relative to net asset value per share. We believe, although there can be no assurance, that our balance sheet is well positioned to make opportunistic acquisitions as we have no remaining debt maturities in 2020, a n $11.4 million mortgag e loan maturing in April 2021, and no balance outstanding on our $250 million revolving credit facility. In addition, we had a cash balance of approximate ly $155.3 million as of September 30, 2020 . See “ Item 1A - Risk Factors ” in this Quarterly Report on Form 10-Q for additional discussion regarding the risks to which we are and may be subject as a result of the COVID-19 pandemic. Acquisition Activity During the three months ended September 30, 2020, we acquired one industrial building containing approximately 22,000 square feet for a total purchase price of approximately $6.3 million. The property was acquired from an unrelated third party using existing cash on hand, net proceeds from dispositions and net proceeds from the issuance of common stock. The following table sets forth the industrial property we acquired during the three months ended September 30, 2020: Property Name Location Acquisition Date Number of Buildings Square Feet Purchase Price (in thousands) 1 Stabilized Cap Rate 2 Starlite Street South San Francisco July 10, 2020 1 22,000 $ 6,300 4.7 % 1 Excludes intangible liabilities and mortgage premiums, if any. The total initial investment was approximately $6.5 million, including $0.1 million in capitalized closing costs and acquisition costs and $0.1 million in assumed intangible liabilities. 2 Stabilized capitalization rates, referred to herein as stabilized cap rates, are calculated, at the time of acquisition, as annualized cash basis net operating income for the property stabilized to market occupancy (generally 95%) divided by the total acquisition cost for the property. Total acquisition cost basis for the property includes the initial purchase price, the effects of marking assumed debt to market, buyer’s due diligence and closing costs, estimated near-term capital expenditures and leasing costs necessary to achieve stabilization. We define cash basis net operating income for the property as net operating income excluding straight-line rents and amortization of lease intangibles. These stabilized cap rates are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control, including risks related to our ability to meet our estimated forecasts related to stabilized cap rates and those risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2019, in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 and in our other public filings. 26 Table of Contents Redevelopment Activity As of September 30, 2020, we have one property under redevelopment expected to contain approximately 0.2 million square feet upon completion with a total expected investment of approximately $63.3 million, including redevelopment costs, capitalized interest and other costs of approximately $61.2 million as follows: Property Name Total Expected Investment (in thousands) 1 Amount Spent to Date (in thousands) Estimated Amount Remaining to Spend (in thousands) Estimated Stabilized Cap Rate 2 Estimated Post-Development Square Feet Estimated Stabilization Quarter % Pre-leased September 30, 2020 Sodo Row - North & South $ 63,325 $ 61,183 $ 2,142 4.4 % 234,308 Q1 2022 14.0 % 1 Total expected investment for the property includes the initial purchase price, due diligence and closing costs, estimated near-term redevelopment expenditures, capitalized interest and leasing costs necessary to achieve stabilization. 2 Estimated stabilized cap rates are calculated as annualized cash basis net operating income for the property stabilized to market occupancy (generally 95%) divided by the total acquisition cost for the property. We define cash basis net operating income for the property as net operating income excluding straight-line rents and amortization of lease intangibles. These estimated stabilized cap rates are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control, including risks related to our ability to meet our estimated forecasts related to stabilized cap rates and those risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2019, in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 and in our other public filings. During the third quarter of 2020, we completed redevelopment of our Kent 192 property in Seattle, Washington, an approximately 0.2 million square foot redevelopment property. The total investment was approximately $33.9 million with an estimated stabilized cap rate of 5.0%. Disposition Activity During the nine months ended September 30, 2020, we 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. The following summarizes the condensed results of operations of the properties sold during the three and nine months ended September 30, 2020 and 2019 (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Rental revenues $ 88 $ 1,016 $ 2,167 $ 2,971 Tenant expense reimbursements (34) 278 449 1,034 Property operating expenses (32) (359) (686) (1,222) Depreciation and amortization — (417) (414) (1,258) Income from operations $ 22 $ 518 $ 1,516 $ 1,525 27 Table of Contents ATM Program We have an at-the-market equity offering program (the “$300 Million ATM Program”) pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $300.0 million ($92.9 million remaining as of September 30, 2020) in amounts and at times as we determine from time to time. Prior to the implementation of the $300 Million ATM Program, we had a $250.0 million ATM program (the “$250 Million ATM Program”), which was substantially utilized as of May 31, 2019 and which is no longer active. We intend to use the net proceeds from the offering of the shares under the $300 Million ATM Program, if any, for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under our revolving credit facility, if any. During the three and nine months ended September 30, 2020, we issued an aggregate of 8,250 and 1,054,577 shares, respectively, of common stock at a weighted average offering price of $59.92 and $53.09 per share, respectively, under the $300 Million ATM Program, resulting in net proceeds of approximately $0.5 million and $55.2 million, respectively, and paying total compensation to the applicable sales agents of approximately $7,000 and $0.8 million, respectively. Long Term Incentive Plan On January 8, 2019, we amended and restated our Amended and Restated Long-Term Incentive Plan (as amended and restated, the “Amended LTIP”). Under the Amended LTIP, each participant’s performance share target award for target awards 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. The fair value of the performance share awards for the performance measurement period of January 1, 2020 to December 31, 2022 is $0.5 million, which will be recognized quarterly over a three-year period. Stock-based compensation expense for the performance share awards was $1.3 million and $3.8 million for the three and nine months ended September 30, 2020, respectively. Equity Incentive Plan On April 30, 2019, our stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”), which replaces the Amended and Restated 2010 Equity Incentive Plan (the “2010 Plan”). The 2019 Plan permits the grant of restricted stock awards, performance share awards and unrestricted stock awards. The maximum number of shares of our common stock that may be issued under the 2019 Plan is 1,898,961, which consists of (i) 1,510,079 shares initially reserved and available for issuance under the 2019 Plan and (ii) 388,882 shares underlying outstanding awards under the 2010 Plan, which if forfeited, canceled or otherwise terminated under the 2010 Plan shall be added to the shares available for issuance under the 2019 Plan. No further awards will be made under the 2010 Plan. As of September 30, 2020, there were 1,898,961 shares of common stock authorized for issuance as restricted stock grants, unrestricted stock awards or performance share awards under the 2019 Plan, of which 1,376,906 were remaining available for issuance. Senior Secured Loan We had a senior secured loan (the “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. As of September 30, 2020 and December 31, 2019, there was approximately $0 and $15.9 million, respectively, net of deferred loan fees of approximately $0 and $0.1 million, respectively, outstanding on the Senior Secured Loan and approximately $0 and $0.3 million, respectively, of interest receivable outstanding on the Senior Secured Loan. Share Repurchase Program We have a share repurchase program authorizing us to repurchase up to 3,000,000 shares of our outstanding common stock from time to time through December 31, 2022 (extended from December 31, 2020 by the Board of Directors on November 3, 2020). Purchases made pursuant to this program will be made in either the open market or in privately negotiated transactions as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. As of September 30, 2020, we had not repurchased any shares of stock pursuant to our share repurchase program. Dividend and Distribution Activity 28 Table of Contents On November 3, 2020, our board of directors declared a cash dividend in the amount of $0.29 per share of our common stock payable on January 5, 2021 to the stockholders of record as of the close of business on December 15, 2020. Contractual Commitments As of November 3, 2020, we have five outstanding contracts with third-party sellers to acquire three buildings and two improved land parcels consisting of 8.3 acres for a total aggregate anticipated purchase price of $42.5 million. Additionally, we have executed two non-binding letters of intent with a third-party seller to acquire four industrial buildings consisting of approximately 125,000 square feet and one improved land parcel consisting of approximately 2.2 acres for an anticipated purchase price of approximately $25.6 million, as described under the heading “Contractual Obligations” in this Quarterly Report on Form 10-Q. There is no assurance that we will acquire the properties and land parcels under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions. There can also be no assurance that we will enter into a purchase and sale agreement with respect to the property under non-binding letter of intent or otherwise complete any such prospective purchase on the terms described or at all. Financial Condition and Results of Operations We derive substantially all of our revenues from rents received from tenants under existing leases on each of our properties. These revenues include fixed base rents and recoveries of certain property operating expenses that we have incurred and that we pass through to the individual tenants. Approximately 92.7% of our leased space includes fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years. Our primary cash expenses consist of our property operating expenses, which include: real estate taxes, repairs and maintenance, management expenses, insurance, utilities, general and administrative expenses, which include compensation costs, office expenses, professional fees and other administrative expenses, acquisition costs, which include third-party costs paid to brokers and consultants, and interest expense, primarily on our mortgage loans, revolving credit facility, term loans and senior unsecured notes. Our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions at various times during the course of such periods. The results of operations of any acquired property are included in our financial statements as of the date of its acquisition. The analysis of our results below for the three and nine months ended September 30, 2020 and 2019 includes the changes attributable to same store properties. The same store pool for the comparison of the three and nine months ended September 30, 2020 and 2019 includes all properties that were owned and in operation as of September 30, 2020 and since January 1, 2019 and excludes properties that were either disposed of prior to, held for sale to a third party or in redevelopment as of September 30, 2020. As of September 30, 2020, the same store pool consisted of 198 buildings aggregating approximately 12.0 million square feet representing approximately 91.5% of our total square feet owned and 14 improved land parcels consisting of 54.2 acres. As of September 30, 2020, the non-same store properties, which we acquired, redeveloped, or sold during 2019 and 2020 or were held for sale (if any) or in redevelopment as of September 30, 2020, consisted of 21 buildings aggregating approximately 1.1 million square feet, eight improved land parcels containing approximately 30.8 acres and one property under redevelopment expected to contain approximately 0.2 million square feet upon completion. As of September 30, 2020 and 2019, our consolidated same store pool occupancy was approximately 98.5% and 98.1%, respectively. Our future financial condition and results of operations, including rental revenues, straight-line rents and amortization of lease intangibles, may be impacted by the acquisitions of additional properties, and expenses may vary materially from historical results. 29 Table of Contents Comparison of the Three Months Ended September 30, 2020 to the Three Months Ended September 30, 2019: For the Three Months Ended September 30, 2020 2019 $ Change % Change (Dollars in thousands) Rental revenues 1 Same store $ 31,629 $ 30,582 $ 1,047 3.4 % Non-same store operating properties 2 5,435 3,745 1,690 45.1 % Total rental revenues 37,064 34,327 2,737 8.0 % Tenant expense reimbursements 1 Same store 9,157 8,466 691 8.2 % Non-same store operating properties 2 926 604 322 53.3 % Total tenant expense reimbursements 10,083 9,070 1,013 11.2 % Total revenues 47,147 43,397 3,750 8.6 % Property operating expenses Same store 10,767 9,808 959 9.8 % Non-same store operating properties 2 1,461 1,183 278 23.5 % Total property operating expenses 12,228 10,991 1,237 11.3 % Net operating income 3 Same store 30,019 29,240 779 2.7 % Non-same store operating properties 2 4,900 3,166 1,734 54.8 % Total net operating income $ 34,919 $ 32,406 $ 2,513 7.8 % Other costs and expenses Depreciation and amortization 12,124 11,105 1,019 9.2 % General and administrative 5,130 5,132 (2) — % Acquisition costs 123 47 76 161.7 % Total other costs and expenses 17,377 16,284 1,093 6.7 % Other income (expense) Interest and other income 51 832 (781) (93.9) % Interest expense, including amortization (3,887) (3,952) 65 (1.6) % Gain on sales of real estate investments 9,016 1,782 7,234 405.9 % Total other income (expense) 5,180 (1,338) 6,518 n/a Net income $ 22,722 $ 14,784 $ 7,938 53.7 % 1 Accounting Standards Update (“ASU”) No. 2018-11, Leases (Topic 842), Targeted Improvements , allows us to elect not to separate lease and non-lease rental income. All rental income earned pursuant to tenant leases is reflected as one line, “Rental revenues and tenant expense reimbursements” on our accompanying consolidated statements of operations. We believe that the above presentation of rental revenues and tenant expense reimbursements is not, and is not intended to be, a presentation in accordance with GAAP,and a reconciliation to total revenue is provided above. We believe this information is frequently used by management, investors, and other interested parties to evaluate our performance. See “Note 2 - Significant Accounting Policies” in our condensed notes to consolidated financial statements for more information regarding our adoption of this standard. 2 Includes 2020 and 2019 acquisitions and dispositions, eight improved land parcels and one property under redevelopment as of September 30, 2020. 3 Includes straight-line rents and amortization of lease intangibles. See “Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q for a definition and reconciliation of net operating income and same store net operating income from net income and a discussion of why we believe net operating income and same store net operating income are useful supplemental measures of our operating performance. 30 Table of Contents Revenues. Total revenues increased approximately $3.8 million for the three months ended September 30, 2020 compared to the same period from the prior year due primarily to property acquisitions during 2020 and 2019 and increased revenue on new and renewed leases. Cash rents on new and renewed leases totaling approximately 0.9 million square feet commencing during the three months ended September 30, 2020 increased approximately 20.3% compared to the same period from the prior year. For the three months ended September 30, 2020 and 2019, approximately $1.1 million and $0.4 million, respectively, was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants. During the three months ended September 30, 2020, due to the effects of COVID-19, approximately $0.2 million in straight-line rent receivables was reversed. Additionally, during the three months ended September 30, 2020, we terminated a lease with the existing tenant at our Belleville property and executed a new lease with a leading e-commerce firm. The lease termination fee received was approximately $3.3 million and the non-cash deferred rent receivable write-off was approximately $3.4 million. Property operating expenses. Total property operating expenses increased approximately $1.2 million during the three months ended September 30, 2020 compared to the same period from the prior year. The increase in total property operating expenses was primarily in the same store pool (approximately $1.0 million) and due to increases in real estate taxes related to annual rate increases, as well as utilities expenses incurred at certain of our properties. Depreciation and amortization. Depreciation and amortization increased approximately $1.0 million during the three months ended September 30, 2020 compared to the same period from the prior year primarily due to property acquisitions and dispositions during 2020 and 2019. General and administrative expenses. General and administrative expenses remained consistent for the three months ended September 30, 2020 compared to the same period from the prior year. Interest and other income. Interest and other income decreased approximately $0.8 million for the three months ended September 30, 2020 compared to the same period from the prior year primarily due to a decrease in our outstanding Senior Secured Loan balance as a result of the repayment of such loan in May 2020. Interest expense, including amortization. Interest expense decreased approximately $0.1 million for the three months ended September 30, 2020 compared to the same period from the prior year primarily due to a lower interest rate on our variable rate term loan and the repayment of a $32.7 million mortgage loan, offset by the issuance of a $100.0 million of senior unsecured debt in December 2019. Gain on sales of real estate investments. Gain on sales of real estate investments increased approximately $7.2 million for the three months ended September 30, 2020 compared to the same period from the prior year. We recognized a gain of $9.0 million from the sale of one property during the three months ended September 30, 2020, compared to a recognized gain of approximately $1.8 million from the sale of one property in the same period from the prior year. 31 Table of Contents Comparison of the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019: For the Nine Months Ended September 30, 2020 2019 $ Change % Change (Dollars in thousands) Rental revenues 1 Same store $ 92,663 $ 90,565 $ 2,098 2.3 % Non-same store operating properties 2 16,142 8,341 7,801 93.5 % Total rental revenues 108,805 98,906 9,899 10.0 % Tenant expense reimbursements 1 Same store 26,602 25,304 1,298 5.1 % Non-same store operating properties 2 2,598 1,797 801 44.6 % Total tenant expense reimbursements 29,200 27,101 2,099 7.7 % Total revenues 138,005 126,007 11,998 9.5 % Property operating expenses Same store 31,309 29,497 1,812 6.1 % Non-same store operating properties 2 4,761 2,896 1,865 64.4 % Total property operating expenses 36,070 32,393 3,677 11.4 % Net operating income 3 Same store 87,956 86,372 1,584 1.8 % Non-same store operating properties 2 13,979 7,242 6,737 93.0 % Total net operating income $ 101,935 $ 93,614 $ 8,321 8.9 % Other costs and expenses Depreciation and amortization 34,683 32,168 2,515 7.8 % General and administrative 16,553 17,852 (1,299) (7.3) % Acquisition costs 186 48 138 287.5 % Total other costs and expenses 51,422 50,068 1,354 2.7 % Other income (expense) Interest and other income 805 3,171 (2,366) (74.6) % Interest expense, including amortization (11,802) (12,269) 467 (3.8) % Gain on sales of real estate investments 26,766 6,247 20,519 328.5 % Total other income (expense) 15,769 (2,851) 18,620 n/a Net income $ 66,282 $ 40,695 $ 25,587 62.9 % 1 ASU No. 2018-11, Leases (Topic 842), Targeted Improvements allows us to elect not to separate lease and non-lease rental income. All rental income earned pursuant to tenant leases is reflected as one line, “Rental revenues and tenant expense reimbursements” on our accompanying consolidated statements of operations. We believe that the above presentation of rental revenues and tenant expense reimbursements is not, and is not intended to be, a presentation in accordance with GAAP. We believe this information is frequently used by management, investors, and other interested parties to evaluate our performance. See “Note 2 - Significant Accounting Policies” in our condensed notes to consolidated financial statements for more information regarding our adoption of this standard. 2 Includes 2019 and 2020 acquisitions and dispositions, eight improved land parcels and one property under redevelopment as of September 30, 2020. 3 Includes straight-line rents and amortization of lease intangibles. See “Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q for a definition and reconciliation of net operating income and same store net operating income from net income and a discussion of why we believe net operating income and same store net operating income are useful supplemental measures of our operating performance. 32 Table of Contents Revenues. Total revenues increased approximately $12.0 million for the nine months ended September 30, 2020 compared to the same period from the prior year due primarily to property acquisitions during 2020 and 2019 and increased revenue on new and renewed leases. Cash rents on new and renewed leases totaling approximately 2.0 million square feet commencing during the nine months ended September 30, 2020 increased approximately 25.2% compared to the same period from the prior year. For the nine months ended September 30, 2020 and 2019, approximately $3.0 million and $1.7 million, respectively, was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants. During the nine months ended September 30, 2020, due to the effects of COVID-19, approximately $1.1 million in straight-line rent receivables was reversed. For the nine months ended September 30, 2020, approximately $0.7 million in rent abatements was provided to the tenant at our Caribbean property. Additionally, during the three months ended September 30, 2020, we terminated a lease with the existing tenant at our Belleville property and executed a new lease with a leading e-commerce firm. The lease termination fee received was approximately $3.3 million and the non-cash deferred rent receivable write-off was approximately $3.4 million. Property operating expenses. Total property operating expenses increased approximately $3.7 million (approximately $1.8 million in the same-store pool) during the nine months ended September 30, 2020 compared to the same period from the prior year. The increase in total property operating expenses was due to annual rate increases in real estate taxes, as well as additional utilities expenses incurred at certain of our properties. Depreciation and amortization. Depreciation and amortization increased approximately $2.5 million during the nine months ended September 30, 2020 compared to the same period from the prior year primarily due to property acquisitions during 2019 and 2020. General and administrative expenses. General and administrative expenses decreased approximately $1.3 million for the nine months ended September 30, 2020 compared to the same period from the prior year due primarily to a decrease of approximately $1.8 million in stock based compensation expense, including a decrease in performance share award expense of $2.6 million, offset by an increase in restricted stock amortization. The decrease in performance share award expense primarily related to the expense for performance share awards granted prior to January 1, 2019, which varies quarter to quarter based on our relative share price performance. Interest and other income. Interest and other income decreased approximately $2.4 million for the nine months ended September 30, 2020 compared to the same period from the prior year primarily due to a decrease in our outstanding Senior Secured Loan balance as a result of the repayment of such loan in May 2020. Interest expense, including amortization. Interest expense decreased approximately $0.5 million for the nine months ended September 30, 2020 compared to the same period from the prior year. This decrease is primarily due to a lower interest rate on our variable rate term loan, the repayment of a $32.7 million mortgage loan, and an increase in capitalized interest, offset by the issuance of a $100.0 million of senior unsecured debt in December 2019. Gain on sales of real estate investments. Gain on sales of real estate investments increased approximately $20.5 million for the nine months ended September 30, 2020 compared to the same period from the prior year. We recognized a gain of $26.8 million from the sale of four properties during the nine months ended September 30, 2020, compared to a recognized gain of approximately $6.2 million from the sale of two properties in the same period from the prior year. Liquidity and Capital Resources The primary objective of our financing strategy is to maintain financial flexibility with a conservative capital structure using retained cash flows, proceeds from dispositions of properties, long-term debt and the issuance of common and perpetual preferred stock to finance our growth. Over the long-term, we intend to: • limit the sum of the outstanding principal amount of our consolidated indebtedness and the liquidation preference of any outstanding perpetual preferred stock to less than 35% of our total enterprise value; • maintain a fixed charge coverage ratio in excess of 2.0x; • maintain a debt-to-adjusted EBITDA ratio below 6.0x; • limit the principal amount of our outstanding floating rate debt to less than 20% of our total consolidated indebtedness; and • have staggered debt maturities that are aligned to our expected average lease term (5-7 years), positioning us to re-price parts of our capital structure as our rental rates change with market conditions. 33 Table of Contents We intend to preserve a flexible capital structure with a long-term goal to maintain our investment grade rating and be in a position to issue additional unsecured debt and perpetual preferred stock. Fitch Ratings assigned us an issuer rating of BBB with a stable outlook. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. There can be no assurance that we will be able to maintain our current credit rating. Our credit rating can affect the amount and type of capital we can access, as well as the terms of any financings we may obtain. In the event our current credit rating is downgraded, it may become difficult or expensive to obtain additional financing or refinance existing obligations and commitments. We intend to primarily utilize senior unsecured notes, term loans, credit facilities, dispositions of properties, common stock and perpetual preferred stock. We may also assume debt in connection with property acquisitions which may have a higher loan-to-value. We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our revolving credit facility. We believe that our net cash provided by operations will be adequate to fund operating requirements, pay interest on any borrowings and fund distributions in accordance with the REIT requirements of the federal income tax laws. In the near-term, we intend to fund future investments in properties with cash on hand, term loans, senior unsecured notes, mortgages, borrowings under our revolving credit facility, perpetual preferred and common stock issuances and, from time to time, property dispositions. We expect to meet our long-term liquidity requirements, including with respect to other investments in industrial properties, property acquisitions, property redevelopments, renovations and expansions and scheduled debt maturities, through borrowings under our revolving credit facility, periodic issuances of common stock, perpetual preferred stock, and long-term secured and unsecured debt, and, from time to time, with proceeds from the disposition of properties. The success of our acquisition strategy may depend, in part, on our ability to obtain and borrow under our revolving credit facility and to access additional capital through issuances of equity and debt securities. The following sets forth certain information regarding our current at-the-market common stock offering program as of September 30, 2020: ATM Stock Offering Program Date Implemented Maximum Aggregate Offering Price (in thousands) Aggregate Common Stock Available as of three and nine months ended (in thousands) $300 Million ATM Program May 17, 2019 $ 300,000 $ 92,870 The table below sets forth the activity under our at-the-market common stock offering programs during the three and nine months ended September 30, 2020 and 2019, respectively (in thousands, except share and price per share data): For the Three Months Ended September 30, Shares Sold Weighted Average Price Per Share Net Proceeds (in thousands) Sales Commissions (in thousands) September 30, 2020 8,250 $ 59.92 $ 487 $ 7 September 30, 2019 1,458,630 $ 50.28 $ 72,283 $ 1,064 For the Nine Months Ended September 30, Shares Sold Weighted Average Price Per Share Net Proceeds (in thousands) Sales Commissions (in thousands) September 30, 2020 1,054,577 $ 53.09 $ 55,175 $ 812 September 30, 2019 5,822,701 $ 45.40 $ 260,531 $ 3,833 We had the 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. As of September 30, 2020 and December 31, 2019, there was approximately $0 and $15.9 million, respectively, net of deferred loan fees of approximately $0 and $0.1 million, respectively, outstanding on the Senior Secured Loan and approximately $0 and $0.3 million, respectively, of interest receivable outstanding on the Senior Secured Loan. As of September 30, 2020, we 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 December 2029 (collectively, the “Senior Unsecured Notes”), and a credit facility (the “Facility”), which consists of a $250.0 million unsecured revolving credit facility that matures in October 2022, and a $100.0 million term loan that matures in January 2022. As of both September 30, 2020 and December 31, 2019, there were no borrowings outstanding on our revolving credit facility and $100.0 million of borrowings outstanding on our term loan. 34 Table of Contents As of September 30, 2020, we had one interest rate cap to hedge the variable cash flows associated with $50.0 million of our existing $100.0 million variable-rate term loan. The cap has a notional value of $50.0 million and will effectively cap the annual interest rate payable at 4.0% plus 1.20% to 1.70%, depending on leverage, with respect to $50.0 million for the period from December 1, 2014 (effective date) to May 4, 2021. As of December 31, 2019, we had an additional interest rate cap with a notional value of $50.0 million (which expired on February 3, 2020) to hedge the variable cash flows associated with $50.0 million of our existing $100.0 million variable-rate term loan. We are required to make certain monthly variable rate payments on the term loan, while the applicable counterparty is obligated to make certain monthly floating rate payments based on LIBOR to us in the event LIBOR is greater than 4.0%, referencing the same notional amount. The aggregate amount of the Facility may be increased to a total of up to $600.0 million, subject to the approval of the administrative agent and the identification of lenders willing to make available additional amounts. Outstanding borrowings under the Facility are limited to the lesser of (i) the sum of the $100.0 million term loan and the $250.0 million revolving credit facility, or (ii) 60.0% of the value of the unencumbered properties. Interest on the Facility, including the term loan, is generally to be paid based upon, at our option, either (i) LIBOR plus the applicable LIBOR margin or (ii) the applicable base rate which is the greatest of the administrative agent’s prime rate, 0.50% above the federal funds effective rate, or thirty-day LIBOR plus the applicable LIBOR margin for LIBOR rate loans under the Facility plus 1.25%. The applicable LIBOR margin will range from 1.05% to 1.50% (1.05% as of September 30, 2020) for the revolving credit facility and 1.20% to 1.70% (1.20% as of September 30, 2020) for the $100.0 million term loan that matures in January 2022, depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value. The Facility requires quarterly payments of an annual facility fee in an amount ranging from 0.15% to 0.30%, depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value. The Facility and the Senior Unsecured Notes are guaranteed by us and by substantially all of the current and to-be-formed subsidiaries of the borrower that own an unencumbered property. The Facility and the Senior Unsecured Notes are unsecured by our properties or by interests in the subsidiaries that hold such properties. The Facility and the Senior Unsecured Notes include a series of financial and other covenants with which we must comply. We were in compliance with the covenants under the Facility and the Senior Unsecured Notes as of September 30, 2020 and December 31, 2019. As of September 30, 2020 and December 31, 2019, we had outstanding mortgage loans payable, net of deferred financing costs, of approximately $11.4 million and $44.3 million, respectively, and held cash and cash equivalents totaling approximately $155.3 million and $110.1 million, respectively. The following tables summarize our debt maturities and principal payments and market capitalization, capitalization ratios, Adjusted EBITDA, interest coverage, fixed charge coverage and debt ratios as of and for the nine months ended September 30, 2020 and 2019 (dollars in thousands, except per share data): Credit Facility Term Loan Senior Unsecured Notes Mortgage Loan Payable Total Debt 2020 (6 months) $ — $ — $ — $ 155 $ 155 2021 — — — 11,233 11,233 2022 — 100,000 50,000 — 150,000 2023 — — — — — 2024 — — 100,000 — 100,000 Thereafter — — 200,000 — 200,000 Total Debt — 100,000 350,000 11,388 461,388 Deferred financing costs, net — (261) (2,034) (10) (2,305) Total Debt, net $ — $ 99,739 $ 347,966 $ 11,378 $ 459,083 Weighted average interest rate n/a 1.4% 3.8% 5.5% 3.3% 35 Table of Contents As of September 30, 2020 As of September 30, 2019 Total Debt, net $ 459,083 $ 442,486 Equity Common Stock Shares Outstanding 1 68,233,344 67,012,010 Market Price 2 $ 54.76 $ 51.09 Total Equity 3,736,458 3,423,644 Total Market Capitalization $ 4,195,541 $ 3,866,130 Total Debt-to-Total Investments in Properties 3 21.1 % 20.7 % Total Debt-to-Total Investments in Properties and Senior Secured Loan 4 21.1 % 20.6 % Total Debt-to-Total Market Capitalization 5 10.9 % 11.4 % Floating Rate Debt as a % of Total Debt 6 21.7 % 33.7 % Unhedged Floating Rate Debt as a % of Total Debt 7 10.9 % 11.3 % Mortgage Loans Payable as a % of Total Debt 8 2.5 % 10.1 % Mortgage Loans Payable as a % of Total Investments in Properties 9 0.5 % 2.1 % Adjusted EBITDA 10 $ 92,540 $ 87,085 Interest Coverage 11 7.8 x 7.1 x Fixed Charge Coverage 12 7.0 x 5.9 x Total Debt-to-Adjusted EBITDA 13 3.6 x 3.7 x Weighted Average Maturity of Total Debt (years) 4.7 3.9 1 Includes 203,729 and 427,868 shares of unvested restricted stock outstanding as of September 30, 2020 and 2019, respectively. 2 Closing price of our shares of common stock on the New York Stock Exchange on September 30, 2020 and September 28, 2019, respectively, in dollars per share. 3 Total debt-to-total investments in properties is calculated as total debt, including premiums and net of deferred financing costs, divided by total investments in properties. 4 Total debt-to-total investments in properties and Senior Secured Loan is calculated as total debt, including premiums and net of deferred financing costs, divided by total investments in properties, including the Senior Secured Loan, net of deferred loan fees of approximately $0 and $0.1 million, as of September 30, 2020 and 2019, respectively. 5 Total debt-to-total market capitalization is calculated as total debt, including premiums and net of deferred financing costs, divided by total market capitalization as of September 30, 2020 and 2019, respectively. 6 Floating rate debt as a percentage of total debt is calculated as floating rate debt, including premiums and net of deferred financing costs, divided by total debt, including premiums and net of deferred financing costs. Floating rate debt includes $100.0 million variable-rate term loan borrowings, of which $50.0 million is subject to an interest rate cap of 4.0% plus 1.20% to 1.70%, depending on leverage as of September 30, 2020, and our $150.0 million variable-rate term loan borrowings, of which $100.0 million was subject to interest rate caps of 4.0% plus 1.20% to 1.70% as of September 30, 2019. See “Note 9 - Derivative Financial Instruments” in our condensed notes to consolidated financial statements for more information regarding our interest rate caps. 7 Unhedged floating rate debt as a percentage of total debt is calculated as unhedged floating rate debt, including premiums and net of deferred financing costs, divided by total debt, including premiums and net of deferred financing costs. Hedged debt includes our $100.0 million variable-rate term loan borrowings, of which $50.0 million is subject to an interest rate cap of 4.0% plus 1.20% to 1.70%, depending on leverage as of September 30, 2020, and our $150.0 million variable rate term loan borrowings of which $100.0 million was subject to interest rate caps of 4.0% plus 1.20% to 1.70% as of September 30, 2019. See “Note 9 - Derivative Financial Instruments” in our condensed notes to consolidated financial statements for more information regarding our interest rate caps. 8 Mortgage loans payable as a percentage of total debt is calculated as mortgage loans payable, including premiums and net of deferred financing costs, divided by total debt, including premiums and net of deferred financing costs. 9 Mortgage loans payable as a percentage of total investments in properties is calculated as mortgage loans payable, including premiums and net of deferred financing costs, divided by total investments in properties. 36 Table of Contents 10 Earnings before interest, taxes, gains (losses) from sales of property, depreciation and amortization, acquisition costs and stock-based compensation (“Adjusted EBITDA”) for the nine months ended September 30, 2020 and 2019, respectively. See “Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q for a definition and reconciliation of Adjusted EBITDA from net income and a discussion of why we believe Adjusted EBITDA is a useful supplemental measure of our operating performance. 11 Interest coverage is calculated as Adjusted EBITDA divided by interest expense, including amortization. See “Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q for a definition and reconciliation of Adjusted EBITDA from net income and a discussion of why we believe Adjusted EBITDA is a useful supplemental measure of our operating performance. 12 Fixed charge coverage is calculated as Adjusted EBITDA divided by interest expense, including amortization plus capitalized interest. See “Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q for a definition and reconciliation of Adjusted EBITDA from net income and a discussion of why we believe Adjusted EBITDA is a useful supplemental measure of our operating performance. 13 Total debt-to-Adjusted EBITDA is calculated as total debt, including premiums and net of deferred financing costs, divided by annualized Adjusted EBITDA. See “Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q for a definition and reconciliation of Adjusted EBITDA from net income and a discussion of why we believe Adjusted EBITDA is a useful supplemental measure of our operating performance. The following table sets forth the cash dividends paid or payable per share during the nine months ended September 30, 2020: For the Three Months Ended Security Dividend per Share Declaration Date Record Date Date Paid March 31, 2020 Common stock $ 0.27 February 5, 2020 March 27, 2020 April 10, 2020 June 30, 2020 Common stock $ 0.27 May 5, 2020 June 30, 2020 July 14, 2020 September 30, 2020 Common stock $ 0.29 August 4, 2020 October 2, 2020 October 16, 2020 Sources and Uses of Cash Our principal sources of cash are cash from operations, borrowings under loans payable, draws on our Facility, common and preferred stock issuances, proceeds from property dispositions and issuances of unsecured notes. Our principal uses of cash are asset acquisitions, debt service, capital expenditures, operating costs, corporate overhead costs and common stock dividends. Cash From Operating Activities. Net cash provided by operating activities totaled approximately $77.4 million for the nine months ended September 30, 2020 compared to approximately $68.5 million for the nine months ended September 30, 2019. This increase in cash provided by operating activities is primarily attributable to additional cash flows generated from the properties we acquired during 2019 and 2020 and same store properties. Cash From Investing Activities. Net cash provided by investing activities was approximately $8.5 million and net cash used in investing activities was $236.7 million, respectively, for the nine months ended September 30, 2020 and 2019, which consisted primarily of cash paid for property acquisitions of approximately $46.8 million and $216.8 million, respectively, additions to capital improvements of approximately $31.3 million and $45.2 million, respectively, offset by net cash received for the Senior Secured Loan of $15.9 million and $0, respectively, and net proceeds from sales of real estate investments of approximately $70.7 million and $25.3 million, respectively. Cash From Financing Activities. Net cash used in financing activities was approximately $42.6 million for the nine months ended September 30, 2020, which consisted primarily of approximately $55.2 million in net common stock issuance proceeds offset by approximately $54.9 million in equity dividend payments and approximately $33.0 million in mortgage loan payments. Net cash provided by financing activities was approximately $191.1 million for the nine months ended September 30, 2019, which consisted primarily of approximately $260.7 million in net common stock issuance proceeds offset by $19.0 million in net payments on our Facility and approximately $45.5 million in equity dividend payments. Critical Accounting Policies A summary of our critical accounting policies is set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 and in the condensed notes to consolidated financial statements in this Quarterly Report on Form 10-Q. 37 Table of Contents Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Contractual Obligations As of November 3, 2020, we have five outstanding contracts with third-party sellers to acquire three industrial properties consisting of approximately 68,000 square feet and two improved land parcels consisting of 5.8 acres for a total aggregate anticipated purchase price of approximately $42.5 million. There is no assurance that we will acquire the properties under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions. The following table summarizes certain information with respect to the properties we have under contract: Market Number of Buildings Square Feet Purchase Price (in thousands) Assumed Debt (in thousands) Los Angeles 1 1 12,618 $ 14,300 $ — Northern New Jersey/New York City 1 16,159 10,625 — San Francisco Bay Area — — — — Seattle 1 38,883 11,737 — Miami 2 — — 5,800 — Washington, D.C. — — — — Total 3 67,660 $ 42,462 $ — 1 Includes one improved land parcel containing approximately 2.5 acres. 2 Includes one improved land parcel containing approximately 5.8 acres. As of November 3, 2020, we have executed two non-binding letters of intent with third-party sellers to acquire four industrial buildings consisting of approximately 125,000 square feet and one improved land parcel consisting of approximately 2.2 acres for a total anticipated purchase price of approximately $25.6 million. In the normal course of our business, we enter into non-binding letters of intent to purchase properties from third parties that may obligate us to make payments or perform other obligations upon the occurrence of certain events, including the execution of a purchase and sale agreement and satisfactory completion of various due diligence matters. There can be no assurance that we will enter into a purchase and sale agreement with respect to the property or otherwise complete any such prospective purchase on the terms described or at all. The following table summarizes our contractual obligations due by period as of September 30, 2020 (dollars in thousands): Contractual Obligations Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total Debt $ 11,388 $ 150,000 $ 100,000 $ 200,000 $ 461,388 Debt interest payments 13,686 24,535 18,670 100,766 157,657 Operating lease commitments 273 210 — — 483 Purchase obligations 42,462 — — — 42,462 Total $ 67,809 $ 174,745 $ 118,670 $ 300,766 $ 661,990 Non-GAAP Financial Measures We use the following non-GAAP financial measures that we believe are useful to investors as key supplemental measures of our operating performance: funds from operations, or FFO, Adjusted EBITDA, net operating income, or NOI, same store NOI and cash-basis same store NOI. FFO, Adjusted EBITDA, NOI, same store NOI and cash-basis same store NOI should not be considered in isolation or as a substitute for measures of performance in accordance with GAAP. Further, our computation of FFO, Adjusted EBITDA, NOI, same store NOI and cash-basis same store NOI may not be comparable to FFO, Adjusted EBITDA, NOI, same store NOI and cash-basis same store NOI reported by other companies. 38 Table of Contents We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), which defines FFO as net income (loss) (determined in accordance with GAAP), excluding gains (losses) from sales of property and impairment write-downs of depreciable real estate, plus depreciation and amortization on real estate assets and after adjustments for unconsolidated partnerships and joint ventures (which are calculated to reflect FFO on the same basis). We believe that presenting FFO provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified non-cash items, such as real estate depreciation and amortization and gain or loss on sale of assets. We believe that FFO is a meaningful supplemental measure of our operating performance because historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, we believe that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our operating performance. The following table reflects the calculation of FFO reconciled from net income for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands except per share data): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 $ Change % Change 2020 2019 $ Change % Change Net income $ 22,722 $ 14,784 $ 7,938 53.7 % $ 66,282 $ 40,695 $ 25,587 62.9 % Gain on sales of real estate investments (9,016) (1,782) (7,234) 405.9 % (26,766) (6,247) (20,519) 328.5 % Depreciation and amortization Depreciation and amortization 12,124 11,105 1,019 9.2 % 34,683 32,168 2,515 7.8 % Non-real estate depreciation (13) (27) 14 (51.9) % (59) (82) 23 (28.0) % Allocation to participating securities 1 (125) (152) 27 (17.8) % (438) (415) (23) 5.5 % Funds from operations attributable to common stockholders 2 $ 25,692 $ 23,928 $ 1,764 7.4 % $ 73,702 $ 66,119 $ 7,583 11.5 % Basic FFO per common share $ 0.38 $ 0.36 $ 0.02 5.6 % 1.09 $ 1.04 $ 0.05 4.8 % Diluted FFO per common share $ 0.38 $ 0.36 $ 0.02 5.6 % 1.09 $ 1.03 $ 0.06 5.8 % Weighted average basic common shares 68,112,661 65,724,426 67,600,957 63,667,100 Weighted average diluted common shares 68,372,515 66,018,996 67,860,811 63,961,670 1 To be consistent with our policies of determining whether instruments granted in share-based payment transactions are participating securities and accounting for earnings per share, the FFO per common share is adjusted for FFO distributed through declared dividends (if any) and allocated to all participating securities (weighted average common shares outstanding and unvested restricted shares outstanding) under the two-class method. Under this method, allocations were made to 291,893 and 406,970 of weighted average unvested restricted shares outstanding for the three months ended September 30, 2020 and 2019, respectively, and 387,990 and 394,089 of weighted average unvested restricted shares outstanding for the nine months ended September 30, 2020 and 2019, respectively. 2 Includes performance share award expense of approximately $1.3 million and $1.6 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $3.8 million and $6.4 million for the nine months ended September 30, 2020 and 2019, respectively. See “Note 11 – Stockholders’ Equity” in the condensed notes to consolidated financial statements for more information regarding our performance share awards. 39 Table of Contents FFO increased by approximately $1.8 million and $7.6 million for the three and nine months ended September 30, 2020, respectively, compared to the same periods from the prior year due primarily to property acquisitions during 2019 and 2020 and same store NOI growth of approximately $0.8 million and $1.6 million for the three and nine months ended September 30, 2020, respectively, compared to the same periods from the prior year. In addition, FFO increased due to a decrease in performance share award expense of approximately $0.3 million and $2.6 million for the three and nine months ended September 30, 2020, respectively. We compute Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, gain on sales of real estate investments, acquisition costs and stock-based compensation. We believe that presenting Adjusted EBITDA provides useful information to investors regarding our operating performance because it is a measure of our operations on an unleveraged basis before the effects of tax, gain (loss) on sales of real estate investments, non-cash depreciation and amortization expense, acquisition costs and stock-based compensation. By excluding interest expense, Adjusted EBITDA allows investors to measure our operating performance independent of our capital structure and indebtedness and, therefore, allows for more meaningful comparison of our operating performance between quarters and other interim periods as well as annual periods and for the comparison of our operating performance to that of other companies, both in the real estate industry and in other industries. As we are currently in a growth phase, acquisition costs are excluded from Adjusted EBITDA to allow for the comparison of our operating performance to that of stabilized companies. The following table reflects the calculation of Adjusted EBITDA reconciled from net income for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 $ Change % Change 2020 2019 $ Change % Change Net income $ 22,722 $ 14,784 $ 7,938 53.7 % $ 66,282 $ 40,695 $ 25,587 62.9 % Gain on sales of real estate investments (9,016) (1,782) (7,234) 405.9 (26,766) (6,247) (20,519) 328.5 % Depreciation and amortization 12,124 11,105 1,019 9.2 % 34,683 32,168 2,515 7.8 % Interest expense, including amortization 3,887 3,952 (65) (1.6) % 11,802 12,269 (467) (3.8) % Stock-based compensation 1,859 1,992 (133) (6.7) % 6,353 8,152 (1,799) (22.1) % Acquisition costs 123 47 76 161.7 % 186 48 138 287.5 % Adjusted EBITDA $ 31,699 $ 30,098 $ 1,601 5.3 % $ 92,540 $ 87,085 $ 5,455 6.3 % We compute NOI as rental revenues, including tenant expense reimbursements, less property operating expenses. We compute same store NOI as rental revenues, including tenant expense reimbursements, less property operating expenses on a same store basis. NOI excludes depreciation, amortization, general and administrative expenses, acquisition costs and interest expense, including amortization. We compute cash-basis same store NOI as same store NOI excluding straight-line rents and amortization of lease intangibles. The same store pool includes all properties that were owned and in operation as of September 30, 2020 and since January 1, 2019 and excludes properties that were either disposed of prior to, held for sale to a third party or in redevelopment as of September 30, 2020. As of September 30, 2020, the same store pool consisted of 198 buildings aggregating approximately 12.0 million square feet representing approximately 91.5% of our total square feet owned and 14 improved land parcels containing approximately 54.2 acres. We believe that presenting NOI, same store NOI and cash-basis same store NOI provides useful information to investors regarding the operating performance of our properties because NOI excludes certain items that are not considered to be controllable in connection with the management of the properties, such as depreciation, amortization, general and administrative expenses, acquisition costs and interest expense. By presenting same store NOI and cash-basis same store NOI, the operating results on a same store basis are directly comparable from period to period. 40 Table of Contents The following table reflects the calculation of NOI, same store NOI and cash-basis same store NOI reconciled from net income for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 $ Change % Change 2020 2019 $ Change % Change Net income 1 $ 22,722 $ 14,784 $ 7,938 53.7 % $ 66,282 $ 40,695 $ 25,587 62.9 % Depreciation and amortization 12,124 11,105 1,019 9.2 % 34,683 32,168 2,515 7.8 % General and administrative 5,130 5,132 (2) — % 16,553 17,852 (1,299) (7.3) % Acquisition costs 123 47 76 161.7 % 186 48 138 287.5 % Total other income and expenses (5,180) 1,338 (6,518) n/a (15,769) 2,851 (18,620) n/a Net operating income 34,919 32,406 2,513 7.8 % 101,935 93,614 8,321 8.9 % Less non-same store NOI 2 (4,900) (3,166) (1,734) 54.8 % (13,979) (7,242) (6,737) 93.0 % Same store NOI 3 $ 30,019 $ 29,240 $ 779 2.7 % $ 87,956 $ 86,372 $ 1,584 1.8 % Less straight-line rents and amortization of lease intangibles 4 2,509 (1,346) 3,855 n/a 811 (4,772) 5,583 n/a Cash-basis same store NOI 3 $ 32,528 $ 27,894 $ 4,634 16.6 % $ 88,767 $ 81,600 $ 7,167 8.8 % Less termination fee income (3,483) (40) (3,443) 8,607.5 % (3,621) (203) (3,418) 1,683.7 % Cash-basis same store NOI excluding termination fees $ 29,045 $ 27,854 $ 1,191 4.3 % $ 85,146 $ 81,397 $ 3,749 4.6 % 1 Includes approximately $3.5 million and $40,000 of lease termination income for the three months ended September 30, 2020 and 2019, respectively, and approximately $3.7 million and $0.2 million of lease termination income for the nine months ended September 30, 2020 and 2019, respectively. 2 Includes 2019 and 2020 acquisitions and dispositions, eight improved land parcels and one property under redevelopment. 3 Includes approximately $3.5 million and $40,000 of lease termination income for the three months ended September 30, 2020 and 2019, respectively, and approximately $3.6 million and $0.2 million of lease termination income for the nine months ended September 30, 2020 and 2019, respectively. 4 Includes straight-line rents and amortization of lease intangibles for the same store pool only. Cash-basis same store NOI increased by approximately $4.6 million for the three months ended September 30, 2020 compared to the same period from the prior year. Such increase included a cash termination fee of approximately $3.3 million paid in July 2020, related to the termination of a lease held with the existing tenant at our Belleville property. We have since executed a new lease with a leading e-commerce firm. In connection with the termination we incurred a non-cash deferred rent receivable write-off of approximately $3.4 million. In addition, cash-basis same store NOI increased due to increased rental revenue on new and renewed leases. For the three months ended September 30, 2020 and 2019, respectively, total contractual rent abatements of approximately $0.6 million and $0.4 million, were given to certain tenants in the same-store pool and approximately $3.5 million and $40,000, in lease termination income was received from certain tenants in the same store pool. Approximately $0.3 million of the increase in cash-basis same store NOI for the three months ended September 30, 2020 related to properties that were acquired vacant or with near term expirations in 2018. Cash-basis same store NOI increased by approximately $7.2 million for the nine months ended September 30, 2020 compared to the same period from the prior year. Such increase included a cash termination fee of approximately $3.3 million paid in July 2020, related to the termination of a lease held with the existing tenant at our Belleville property. We have since executed a new lease with a leading e-commerce firm. In connection with the termination we incurred a non-cash deferred rent receivable write-off of approximately $3.4 million. In addition, cash-basis same store NOI increased due to increased rental revenue on new and renewed leases, offset by a decrease in occupancy rate. For the nine months ended September 30, 2020 and 2019, total contractual rent abatements of $1.7 million and $1.6 million, respectively, were given to certain tenants in the same-store pool and approximately $3.6 million and $0.2 million, respectively, in lease termination income was received from certain tenants in the same store pool. Approximately $0.7 million of the increase in cash-basis same store NOI for the nine months ended September 30, 2020 related to properties that were acquired vacant or with near term expirations in 2018. 41 Table of Contents