Terreno Realty Corp 10-K

Item 2. Properties. As of December 31, 2022, we owned a total of 252 buildings aggregating approximately 15.3 million square feet, 46 improved land parcels consisting of approximately 161.4 acres and three properties under redevelopment that, upon completion, will consist of one building of approximately 34,000 square feet and two improved land parcels aggregating approximately 12.1 acres. As of December 31, 2022, the buildings and improved land parcels were approximately 98.6% and 92.5% leased, respectively, to 569 customers, the largest of which accounted for approximately 4.3% 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, 2022: Type Number of Buildings or Improved Land Parcels Annualized Base Rent (in thousands) 1 % of Total Warehouse/distribution 220 $ 166,531 76.5 % Flex 13 8,919 4.1 % Transshipment 19 14,764 6.8 % Improved land 46 27,352 12.6 % Total 298 $ 217,566 100.0 % 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, 2022, multiplied by 12. 24 Table of Contents The following table summarizes by market our investments in real estate as of December 31, 2022: Los Angeles Northern New Jersey/New York City San Francisco Bay Area Seattle Miami Washington, D.C. Total/Weighted Average Investments in Real Estate Number of Buildings 54 43 52 44 37 22 252 Rentable Square Feet 2,779,708 2,706,893 2,436,280 2,783,070 2,814,302 1,762,100 15,282,353 % of Total 18.2 % 17.7 % 15.9 % 18.2 % 18.5 % 11.5 % 100.0 % Occupancy % as of December 31, 2022 99.3 % 98.7 % 97.0 % 97.3 % 100.0 % 99.2 % 98.6 % Annualized Base Rent (in thousands) 1 $ 33,419 $ 42,651 $ 34,080 $ 32,539 $ 26,476 $ 21,049 $ 190,214 % of Total 17.6 % 22.4 % 17.9 % 17.1 % 13.9 % 11.1 % 100.0 % Annualized Base Rent 1 Per Occupied Square Foot $ 12.10 $ 15.96 $ 14.42 $ 12.01 $ 9.41 $ 12.05 $ 12.62 Weighted Average Remaining Lease Term (Years) 2 5.7 4.5 2.8 3.9 5.2 3.4 4.3 Investments in Improved Land Number of Land Parcels 14 13 3 10 3 3 46 Acres 29.8 68.0 7.1 25.9 9.9 20.7 161.4 % of Total 18.5 % 42.2 % 4.4 % 16.0 % 6.1 % 12.8 % 100.0 % Occupancy % as of December 31, 2022 89.4 % 100.0 % 100.0 % 92.4 % 32.0 % 100.0 % 92.5 % Annualized Base Rent (in thousands) 1 $ 8,199 $ 11,423 $ 1,467 $ 3,882 $ 428 $ 1,953 $ 27,352 % of Total 30.0 % 41.8 % 5.4 % 14.2 % 1.6 % 7.0 % 100.0 % Annualized Base Rent 1 Per Occupied Square Foot $ 7.07 $ 4.03 $ 4.76 $ 3.89 $ 3.11 $ 2.24 $ 4.31 Weighted Average Remaining Lease Term (Years) 2 3.8 5.0 3.1 2.4 1.8 6.3 4.4 Total Investments in Real Estate and Improved Land Annualized Base Rent (in thousands) 1 $ 41,618 $ 54,074 $ 35,547 $ 36,421 $ 26,904 $ 23,002 $ 217,566 % of Total Annualized Base Rent 1 19.1 % 24.9 % 16.3 % 16.7 % 12.4 % 10.6 % 100.0 % Gross Book Value (in thousands) 3 $ 679,911 $ 769,004 $ 556,761 $ 601,920 $ 467,136 $ 324,042 $ 3,398,774 % of Total Gross Book Value 20.0 % 22.6 % 16.4 % 17.7 % 13.7 % 9.6 % 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, 2022, multiplied by 12. 2 Weighted average remaining lease term is calculated by summing the remaining lease term of each lease as of December 31, 2022, weighted by the respective square footage. 3 Includes three properties under redevelopment that, upon completion, will consist of one building of approximately 34,000 square feet and two improved land parcels aggregating approximately 12.1 acres. As of December 31, 2022, we owned three properties under redevelopment that, upon completion, will consist of one building of approximately 34,000 square feet and two improved land parcels aggregating approximately 12.1 acres with a total expected investment of approximately $69.3 million, including redevelopment costs, capitalized interest and other costs. 25 Table of Contents The following table summarizes our capital expenditures incurred during the three months and years ended December 31, 2022 and 2021 (dollars in thousands): For the Three Months Ended December 31, For the Year Ended December 31, 2022 2021 2022 2021 Building improvements $ 6,165 $ 8,600 $ 40,337 $ 29,614 Tenant improvements 252 1,060 11,533 8,018 Leasing commissions 4,410 3,265 19,584 15,487 Redevelopment, renovation and expansion 678 4,776 21,623 14,711 Total capital expenditures 1 $ 11,505 $ 17,701 $ 93,077 $ 67,830 1 Includes approximately $6.2 million and $11.0 million for the three months ended December 31, 2022 and 2021, respectively, and approximately $61.1 million and $39.0 million for the years ended December 31, 2022 and 2021, respectively, related to leasing acquired vacancy, redevelopment construction in progress and renovation and expansion projects (stabilization capital) at 20 and 22 properties for the three months ended December 31, 2022 and 2021, respectively, and at 34 and 24 properties for the years ended December 31, 2022 and 2021, 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 93.5% 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 Contents Our top 20 customers based on annualized base rent as of December 31, 2022 are as follows: Customer Leases Rentable Square Feet % of Total Rentable Square Feet Annualized Base Rent (in thousands) 1 % of Total Annualized Base Rent Improved Land Acreage 1 Amazon.com 6 471,880 3.1 % $ 9,444 4.3 % 6.2 2 FedEx Corporation 6 246,779 1.6 % 4,943 2.3 % 7.7 3 Danaher 3 171,707 1.1 % 3,960 1.8 % — 4 United States Government 8 300,732 2.0 % 3,929 1.8 % — 5 District of Columbia 8 245,888 1.7 % 3,480 1.7 % — 6 DirectBuy Home Improvement 1 230,891 1.5 % 3,463 1.6 % — 7 Allied Brothers Intermodal Inc. 1 30,978 0.2 % 2,580 1.2 % — 8 O'Neill Logistics 2 237,692 1.6 % 2,131 1.0 % — 9 Port Kearny Security, Inc. 1 — — % 2,040 0.9 % 16.9 10 B&B Granite Block Sales, LLC 1 — — % 1,944 0.9 % 7.2 11 Costco-Innovel Solutions LLC 1 219,910 1.4 % 1,926 0.9 % — 12 Hanjin International America, Inc. and Hanjin Transportation Co., LTD 1 114,061 0.7 % 1,848 0.8 % — 13 XPO Logistics 2 180,717 1.2 % 1,843 0.8 % — 14 Team Alliance Logistics Inc. DBA A&V Transportation 2 — — % 1,805 0.8 % 4.4 15 L3 Harris Technologies, Inc. 1 147,898 1.0 % 1,751 0.8 % — 16 Divergent Technologies, Inc. 2 72,808 0.5 % 1,613 0.8 % 1.4 17 Bar Logistics 1 203,263 1.3 % 1,593 0.7 % — 18 Topaz Lighting Corp. 1 190,000 1.2 % 1,552 0.7 % — 19 YRC 2 61,252 0.4 % 1,540 0.7 % — 20 PODS Enterprises, LLC 1 201,977 1.3 % 1,515 0.7 % — Total 51 3,328,433 21.8 % $ 54,900 25.2 % 43.8 1 Annualized base rent is calculated as contractual monthly base rent per the leases for rentable square feet and/or, if applicable, improved land, excluding any partial or full rent abatements, as of December 31, 2022, multiplied by 12. The following table summarizes the anticipated lease expirations for leases in place as of December 31, 2022, 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 2023 1 2,010,833 13.2 % $ 23,027 9.2 % 2024 1,811,128 11.9 % 25,385 10.2 % 2025 2,221,818 14.5 % 38,014 15.2 % 2026 2,435,001 15.9 % 42,928 17.2 % 2027 2,382,505 15.6 % 39,447 15.8 % Thereafter 4,205,751 27.5 % 80,871 32.4 % Total 15,067,036 98.6 % $ 249,672 100.0 % 1 Includes leases that expire on or after December 31, 2022 and month-to-month leases totaling approximately 84,922 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, 2022, multiplied by 12. 3 Includes annualized base rent related to 46 improved land parcels totaling approximately 161.4 acres. 27 Table of Contents 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, 2022, leases representing approximately 9.2% of the total annualized base rent of our portfolio are scheduled to expire during the year ending December 31, 2023. We currently expect that, on average, the rental rates we are likely to achieve on new (re-leased) or renewed leases for our 2023 expirations will be above the rates currently being paid for the same space. Cash rent changes on new and renewed leases totaling approximately 0.3 million square feet and 2.6 acres of improved land commencing during the three months ended December 31, 2022 were approximately 45.2% higher as compared to the previous rental rates for that same space, and cash rent changes on new and renewed leases totaling approximately 2.2 million square feet and 19.1 acres of improved land commencing during the year ended December 31, 2022 were approximately 49.5% higher as compared to the previous rental rates for that same space. We had a tenant retention ratio for the operating portfolio of 80.6% and 56.6%, respectively, for the three months and year ended December 31, 2022. We had a tenant retention ratio for the improved land portfolio of 0% and 65.0%, respectively, for the three months and year ended December 31, 2022. We define tenant retention ratio as the square footage or acreage of all leases commenced during the period that are rented by existing tenants divided by the square footage or acreage of all expiring leases during the reporting period. The square footage or acreage 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 Contents PART II