Terreno Realty Corp 10-K

Item 2. Properties. As of December 31, 2021, we owned a total of 253 buildings aggregating approximately 15.1 million square feet, 36 improved land parcels consisting of approximately 127.1 acres and four properties under redevelopment that, upon completion, will consist of two properties aggregating approximately 0.2 million square feet and two improved land parcels aggregating approximately 12.1 acres. As of December 31, 2021, the buildings and improved land parcels were approximately 95.5% and 94.8% leased (including 0.4 million square feet of vacancy acquired during the fourth quarter of 2021), respectively, to 554 customers, the largest of which accounted for approximately 4.9% of our total annualized base rent. The properties are located in 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 buildings, flex buildings (including light industrial and research and development, or R&D), transshipment buildings and improved land parcels. See “Item 1 – Our Investment Strategy – Industrial Facility General Characteristics” in this Annual Report on Form 10-K for a general description of these types of industrial real estate. 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. See our “Consolidated Financial Statements, Schedule III-Real Estate Investments and Accumulated Depreciation” in this Annual Report on Form 10-K for a detailed listing of our properties. The following table summarizes by type our investments in real estate as of December 31, 2021: Type Number of Buildings or Improved Land Parcels Annualized Base Rent (in thousands) 1 % of Total Warehouse/distribution 223 $ 146,272 79.5 % Flex 12 8,816 4.8 % Transshipment 18 11,683 6.4 % Improved land 36 17,094 9.3 % Total 289 $ 183,865 100.0 % 1 Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of December 31, 2021, multiplied by 12. 24 Table of Content s The following table summarizes by market our investments in real estate as of December 31, 2021: 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 51 62 46 41 31 22 253 Rentable Square Feet 2,695,418 3,447,704 2,196,384 2,750,349 2,210,497 1,761,704 15,062,056 % of Total 17.8 % 22.9 % 14.6 % 18.3 % 14.7 % 11.7 % 100.0 % Occupancy % as of December 31, 2021 4 99.0 % 98.5 % 97.7 % 96.8 % 83.7 % 93.9 % 95.5 % Annualized Base Rent (in thousands) 1 $ 28,043 $ 43,228 $ 29,861 $ 29,076 $ 16,527 $ 20,036 $ 166,771 % of Total 16.8 % 25.9 % 17.9 % 17.5 % 9.9 % 12.0 % 100.0 % Annualized Base Rent 1 Per Occupied Square Foot $ 10.51 $ 12.72 $ 13.91 $ 10.92 $ 8.94 $ 12.11 $ 11.60 Weighted Average Remaining Lease Term (Years) 2 2.6 4.7 3.4 3.8 4.5 3.1 4.4 Investments in Improved Land Number of Land Parcels 10 10 3 8 2 3 36 Acres 20.7 54.2 7.1 21.2 3.2 20.7 127.1 % of Total 16.3 % 42.6 % 5.6 % 16.7 % 2.5 % 16.3 % 100.0 % Occupancy % as of December 31, 2021 90.5 % 100.0 % 100.0 % 78.1 % 100.0 % 100.0 % 94.8 % Annualized Base Rent (in thousands) 1 $ 4,341 $ 7,043 $ 1,418 $ 2,163 $ 422 $ 1,707 $ 17,094 % of Total 25.4 % 41.2 % 8.3 % 12.6 % 2.5 % 10.0 % 100.0 % Annualized Base Rent 1 Per Occupied Square Foot $ 5.32 $ 3.07 $ 4.60 $ 3.15 $ 3.07 $ 1.95 $ 3.32 Weighted Average Remaining Lease Term (Years) 2 3.3 5.9 3.4 3.8 2.6 6.0 5.0 Total Investments in Real Estate and Improved Land Annualized Base Rent (in thousands) 1 $ 32,384 $ 50,271 $ 31,279 $ 31,239 $ 16,949 $ 21,743 $ 183,865 % of Total Annualized Base Rent 1 17.6 % 27.3 % 17.0 % 17.0 % 9.2 % 11.9 % 100.0 % Gross Book Value (in thousands) 3 $ 537,072 $ 750,302 $ 453,233 $ 551,547 $ 341,946 $ 312,726 $ 2,946,826 % of Total Gross Book Value 18.2 % 25.5 % 15.4 % 18.7 % 11.6 % 10.6 % 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 December 31, 2021, multiplied by 12. 2 Weighted average remaining lease term is calculated by summing the remaining lease term of each lease as of December 31, 2021, weighted by the respective square footage. 3 Includes four properties under redevelopment that, upon completion, will consist of two properties aggregating approximately 0.2 million square feet and two improved land parcels aggregating approximately 12.1 acres. 4 Includes 0.4 million square feet of vacancy acquired in Miami. As of December 31, 2021, we owned four properties under redevelopment that, upon completion, will consist of two properties aggregating approximately 0.2 million square feet and two improved land parcels aggregating approximately 12.1 acres with a total expected investment of approximately $75.8 million, including redevelopment costs, capitalized interest and other costs. 25 Table of Content s The following table summarizes our capital expenditures incurred during the three months and years ended December 31, 2021 and 2020 (dollars in thousands): For the Three Months Ended December 31, For the Year Ended December 31, 2021 2020 2021 2020 Building improvements $ 8,600 $ 3,210 $ 29,614 $ 15,311 Tenant improvements 1,060 1,163 8,018 2,868 Leasing commissions 3,265 3,698 15,487 13,408 Redevelopment, renovation and expansion 4,776 265 14,711 7,026 Total capital expenditures 1 $ 17,701 $ 8,336 $ 67,830 $ 38,613 1 Includes approximately $11.0 million and $2.0 million for the three months ended December 31, 2021 and 2020, respectively, and approximately $39.0 million and $17.4 million for the years ended December 31, 2021 and 2020, respectively, related to leasing acquired vacancy, redevelopment construction in progress and renovation and expansion projects (stabilization capital) at 22 and 10 properties for the three months ended December 31, 2021 and 2020, respectively, and at 24 and 15 properties for the years ended December 31, 2021 and 2020, respectively. Our industrial properties are typically subject to leases on a “triple net basis,” in which tenants pay their proportionate share of real estate taxes, insurance and operating costs, or are subject to leases on a “modified gross basis,” in which tenants pay expenses over certain threshold levels. In addition, approximately 94.2% 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 ongoing 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. 26 Table of Content s Our top 20 customers based on annualized base rent as of December 31, 2021 are as follows: Customer Leases Rentable Square Feet % of Total Rentable Square Feet Annualized Base Rent (in thousands) 1 % of Total Annualized Base Rent 1 Amazon.com 2 6 471,880 3.1 % $ 9,059 4.9 % 2 FedEx Corporation 3 6 246,779 1.6 % 4,814 2.6 % 3 Danaher 3 171,707 1.1 % 3,844 2.1 % 4 United States Government 8 300,732 2.0 % 3,757 2.0 % 5 District of Columbia 7 234,071 1.6 % 3,362 1.8 % 6 O'Neill Logistics 2 237,692 1.6 % 2,069 1.1 % 7 DirectBuy Home Improvement 1 230,891 1.5 % 2,011 1.1 % 8 Costco-Innovel Solutions LLC 1 219,910 1.5 % 1,870 1.0 % 9 Port Kearny Security, Inc. 4 1 — — % 1,800 1.0 % 10 XPO Logistics 2 180,717 1.2 % 1,764 1.0 % 11 L3 Harris Technologies, Inc. 1 147,898 1.0 % 1,700 0.9 % 12 Exquisite Apparel Corporation 1 114,061 0.8 % 1,574 0.9 % 13 Bar Logistics 1 203,263 1.3 % 1,546 0.9 % 14 Topaz Lighting Corp. 1 190,000 1.3 % 1,507 0.9 % 15 Envogue International 1 192,000 1.3 % 1,454 0.8 % 16 YRC 2 61,252 0.4 % 1,441 0.8 % 17 United States Postal Service 2 53,000 0.4 % 1,438 0.8 % 18 Lilac Solutions Inc. 1 92,884 0.6 % 1,378 0.7 % 19 Saia Motor Freight Line LLC 1 52,086 0.3 % 1,315 0.7 % 20 Northrop Grumman Systems Corporation 1 103,200 0.7 % 1,300 0.7 % Total 49 3,504,023 23.3 % $ 49,003 26.7 % 1 Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of December 31, 2021, multiplied by 12. 2 Includes two improved land parcels consisting of approximately 6.2 acres. 3 Includes two improved land parcels consisting of approximately 7.7 acres. 4 Includes an improved land parcel consisting of approximately 16.9 acres. The following table summarizes the anticipated lease expirations for leases in place as of December 31, 2021, 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 (in thousands) 2, 3 % of Total Annualized Base Rent 2022 1 2,073,677 13.8 % $ 22,246 10.6 % 2023 2,076,228 13.8 % 27,592 13.2 % 2024 1,868,669 12.4 % 25,385 12.1 % 2025 1,721,728 11.4 % 27,689 13.2 % 2026 2,307,961 15.3 % 35,988 17.2 % Thereafter 4,328,863 28.8 % 70,831 33.7 % Total 14,377,126 95.5 % $ 209,731 100.0 % 1 Includes leases that expire on or after December 31, 2021 and month-to-month leases totaling approximately 44,655 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 December 31, 2021, multiplied by 12. 3 Includes annualized base rent related to 36 improved land parcels totaling approximately 127.1 acres. 27 Table of Content s 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 December 31, 2021, leases representing approximately 10.6% of the total annualized base rent of our portfolio are scheduled to expire during the year ending December 31, 2022. We currently expect that, on average, the rental rates we are likely to achieve on new (re-leased) or renewed leases for our 2022 expirations will be above the rates currently being paid for the same space. Rent changes on new and renewed leases totaling approximately 0.6 million square feet commencing during the three months ended December 31, 2021 were approximately 34.4% higher as compared to the previous rental rates for that same space, and rent changes on new and renewed leases totaling approximately 2.6 million square feet commencing during the year ended December 31, 2021 were approximately 28.4% higher as compared to the previous rental rates for that same space. We had a tenant retention ratio of 57.5% and 65.7%, respectively, for the three months and year ended December 31, 2021. We define tenant retention ratio as the square footage of all leases commenced during the period that are rented by existing tenants divided by the square footage of all expiring leases during the reporting period. The square footage of tenants that default or buy-out prior to expiration of their lease and short-term leases of less than one year are not included in the calculation. Our past performance may not be indicative of future results, and we cannot assure you that leases will be renewed or that our properties will be re-leased at all or at rental rates equal to or above the current average rental rates. Further, re-leased/renewed rental rates in a particular market may not be consistent with rental rates across our portfolio as a whole and re-leased/renewed rental rates for particular properties within a market may not be consistent with rental rates across our portfolio within a particular market, in each case due to a number of factors, including local real estate conditions, local supply and demand for industrial space, the condition of the property, the impact of leasing incentives, including free rent and tenant improvements, and whether the property, or space within the property, has been redeveloped. Item 3. Legal Proceedings. We are not involved in any material litigation nor, to our knowledge, is any material litigation threatened against us. Item 4. Mine Safety Disclosures. Not Applicable. 28 Table of Content s PART II