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”, “potential”, “future” 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, 2022, which was filed with the Securities and Exchange Commission on February 8, 2023, in this Quarterly Report on Form 10-Q, and in our other public filings; • 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 own 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; • 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 (including rising inflation, supply chain disruptions and construction delays); • the impact of COVID-19 or any future pandemic, epidemic or outbreak of any other highly infectious disease on the U.S., regional and global economies and on our business, financial condition and results of operations and that of our tenants; • our failure to qualify or maintain our status as a real estate investment trust (“REIT”), and possible adverse changes to tax laws; • 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; 17 Table of Contents • 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 75.9% of our total annualized base rent as of March 31, 2023), flex (including light industrial and research and development, or R&D) (approximately 3.9%), transshipment (approximately 6.7%) and improved land (approximately 13.5%). We target functional properties 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 March 31, 2023, we owned a total of 257 buildings (including one building held for sale) aggregating approximately 15.9 million square feet, 46 improved land parcels consisting of approximately 161.4 acres and four properties under development or redevelopment that, upon completion, will consist of 12 buildings aggregating approximately 2.3 million square feet and one approximately 7.2 acre improved land parcel. As of March 31, 2023, our buildings and improved land parcels were approximately 98.1% and 98.9% leased, respectively, to 566 customers, the largest of which accounted for approximately 3.7% 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, 2022 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, commencing with our taxable year ended December 31, 2010. The following table summarizes by type our investments in real estate as of March 31, 2023: Type Number of Buildings or Improved Land Parcels Annualized Base Rent (in thousands) 1 % of Total Warehouse/distribution 225 $ 178,488 75.9 % Flex 13 9,136 3.9 % Transshipment 19 15,786 6.7 % Improved land 46 31,782 13.5 % Total 303 $ 235,192 100.0 % 1 Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of March 31, 2023, multiplied by 12. 18 Table of Contents The following table summarizes by market our investments in real estate as of March 31, 2023: 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 44 56 44 37 22 257 Rentable Square Feet 2,779,646 2,752,675 3,038,922 2,783,148 2,814,302 1,762,043 15,930,736 % of Total 17.4 % 17.3 % 19.1 % 17.5 % 17.7 % 11.0 % 100.0 % Occupancy % as of March 31, 2023 98.0 % 99.0 % 96.7 % 95.9 % 100.0 % 99.4 % 98.1 % Annualized Base Rent (in thousands) 1 $ 33,552 $ 46,000 $ 43,222 $ 32,399 $ 26,815 $ 21,422 $ 203,410 % of Total 16.5 % 22.6 % 21.2 % 15.9 % 13.2 % 10.6 % 100.0 % Annualized Base Rent 1 Per Occupied Square Foot $ 12.32 $ 16.87 $ 14.70 $ 12.14 $ 9.53 $ 12.23 $ 13.02 Weighted Average Remaining Lease Term (Years) 2 5.6 4.0 3.6 3.8 5.0 3.3 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 March 31, 2023 96.6 % 100.0 % 100.0 % 96.9 % 100.0 % 100.0 % 98.9 % Annualized Base Rent (in thousands) 1 $ 9,044 $ 11,866 $ 1,496 $ 5,504 $ 1,892 $ 1,980 $ 31,782 % of Total 28.5 % 37.3 % 4.7 % 17.3 % 6.0 % 6.2 % 100.0 % Annualized Base Rent 1 Per Occupied Square Foot $ 7.22 $ 4.19 $ 4.86 $ 5.26 $ 4.40 $ 2.27 $ 4.69 Weighted Average Remaining Lease Term (Years) 2 3.8 4.8 2.9 3.8 7.5 6.0 4.7 Total Investments in Real Estate and Improved Land Annualized Base Rent (in thousands) 1 $ 42,596 $ 57,866 $ 44,718 $ 37,903 $ 28,707 $ 23,402 $ 235,192 % of Total Annualized Base Rent 1 18.1 % 24.6 % 19.0 % 16.1 % 12.2 % 10.0 % 100.0 % Gross Book Value (in thousands) 3 $ 682,068 $ 792,763 $ 757,503 $ 604,177 $ 663,840 $ 324,211 $ 3,824,562 % of Total Gross Book Value 17.8 % 20.7 % 19.8 % 15.8 % 17.4 % 8.5 % 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 March 31, 2023, multiplied by 12. 2 Weighted average remaining lease term is calculated by summing the remaining lease term of each lease as of March 31, 2023, weighted by the respective square footage. 3 Includes four properties under development or redevelopment that, upon completion, will consist of 12 buildings aggregating approximately 2.3 million square feet and one approximately 7.2 acre improved land parcel, and one property held for sale with an aggregate gross book value of approximately $14.8 million. As of March 31, 2023, we owned four properties under development or redevelopment that, upon completion, will consist of 12 buildings aggregating approximately 2.3 million square feet and one approximately 7.2 acre improved land parcel, with a total expected investment of approximately $571.2 million, including redevelopment costs, capitalized interest and other costs. 19 Table of Contents The following table summarizes our capital expenditures incurred during the three months ended March 31, 2023 and 2022 (dollars in thousands): For the Three Months Ended March 31, 2023 2022 Building improvements $ 6,404 $ 9,516 Tenant improvements 610 4,547 Leasing commissions 3,176 4,691 Development, redevelopment, renovation and expansion 11,620 11,951 Total capital expenditures 1 $ 21,810 $ 30,705 1 Includes approximately $17.0 million and $23.5 million for the three months ended March 31, 2023 and 2022, respectively, related to leasing acquired vacancy, redevelopment construction in progress and renovation and expansion projects (stabilization capital) at 20 and 21 properties for the three months ended March 31, 2023 and 2022, 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 94.5% 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. 20 Table of Contents Our top 20 customers based on annualized base rent as of March 31, 2023 are as follows: Customer Leases Rentable Square Feet % of Total Rentable Square Feet Improved Land Acreage Annualized Base Rent (in thousands) 1 % of Total Annualized Base Rent 2 1 Amazon.com 5 471,880 3.0 % 2.8 $ 8,685 3.7 % 2 FedEx Corporation 5 242,889 1.5 % 7.7 5,082 2.2 % 3 Danaher 3 171,707 1.1 % — 3,960 1.7 % 4 United States Government 8 300,732 1.9 % — 3,929 1.7 % 5 District of Columbia 8 245,888 1.6 % — 3,480 1.5 % 6 DirectBuy Home Improvement 1 230,891 1.4 % — 3,463 1.4 % 7 International Cargo Terminals Inc. 1 31,601 0.2 % — 3,300 1.4 % 8 Meta Platforms, Inc. 1 225,678 1.4 % — 2,811 1.2 % 9 Lucid USA, Inc. 1 161,680 1.0 % — 2,522 1.1 % 10 Port Kearny Security, Inc. 1 — — % 16.9 2,280 1.0 % 11 B&B Granite Block Sales, LLC 1 — — % 7.2 2,160 0.9 % 12 O'Neill Logistics 2 237,692 1.5 % — 2,131 0.9 % 13 Costco-Innovel Solutions LLC 1 219,910 1.4 % — 1,926 0.8 % 14 Hanjin International America, Inc. 1 114,061 0.7 % — 1,908 0.8 % 15 XPO Logistics 2 180,717 1.1 % — 1,877 0.8 % 16 Team Alliance Logistics Inc. DBA A&V Transportation 2 — — % 4.4 1,805 0.8 % 17 L3 Harris Technologies, Inc. 1 147,898 0.9 % — 1,804 0.7 % 18 The RK Logistics Group, Inc. 1 141,275 0.9 % — 1,729 0.7 % 19 YRC 2 61,252 0.4 % — 1,662 0.7 % 20 Divergent Technologies, Inc. 2 72,808 0.5 % 1.4 1,661 0.7 % Total 49 3,258,559 20.5 % 40.4 $ 58,175 24.7 % 1 Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of March 31, 2023, multiplied by 12. 2 Total annualized base rent is calculated as contractual monthly base rent per the leases, for all buildings and improved land parcels, excluding any partial or full rent abatements, as of March 31, 2023, multiplied by 12. The following tables summarize the anticipated lease expirations for leases in place as of March 31, 2023, without giving effect to the exercise of unexercised renewal options or termination rights, if any, at or prior to the scheduled expirations: Buildings: Year Rentable Square Feet % of Total Rentable Square Feet Annualized Base Rent (in thousands) 2 % of Total Annualized Base Rent 3 2023 (9 months) 1 1,653,809 10.4 % $ 24,927 9.2 % 2024 1,803,595 11.3 % 20,645 7.6 % 2025 2,229,751 14.0 % 34,362 12.6 % 2026 2,631,645 16.5 % 37,838 13.9 % 2027 2,434,230 15.3 % 40,068 14.7 % Thereafter 4,870,489 30.6 % 76,851 28.3 % Total 15,623,519 98.1 % $ 234,691 86.3 % 21 Table of Contents Improved Land Parcels: Year Improved Land Acreage % of Total Improved Land Acreage Annualized Base Rent (in thousands) 2 % of Total Annualized Base Rent 3 2023 (9 months) 4 18.6 11.5 % $ 3,613 1.3 % 2024 19.4 12.0 % 3,690 1.4 % 2025 14.9 9.2 % 3,626 1.3 % 2026 14.9 9.2 % 3,914 1.4 % 2027 12.2 7.6 % 4,156 1.6 % Thereafter 79.7 49.4 % 18,204 6.7 % Total 159.7 98.9 % $ 37,203 13.7 % Total Buildings and Improved Land Parcels: Year Total Annualized Base Rent (in thousands) 3 % of Total Annualized Base Rent 3 2023 (9 months) 5 $ 28,540 10.5 % 2024 24,335 9.0 % 2025 37,988 13.9 % 2026 41,752 15.3 % 2027 44,224 16.3 % Thereafter 95,055 35.0 % Total $ 271,894 100.0 % 1 Includes leases that expire on or after March 31, 2023 and month-to-month leases totaling approximately 97,612 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 March 31, 2023, multiplied by 12. 3 Total annualized base rent is calculated as contractual monthly base rent per the leases at expiration, for all buildings and/or improved land parcels, excluding any partial or full rent abatements, as of March 31, 2023, multiplied by 12. 4 Includes leases that expire on or after March 31, 2023 and month-to-month leases totaling approximately 2.4 acres. 5 Includes leases that expire on or after March 31, 2023 and month-to-month leases disclosed in footnotes 1 and 4 of the table. 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 March 31, 2023, leases representing approximately 10.5% 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 0.6 million square feet and 5.6 acres of improved land commencing during the three months ended March 31, 2023 were approximately 69.3% higher as compared to the previous rental rates for that same space. We had a tenant retention ratio for the operating portfolio of 54.4% for the three months ended March 31, 2023. We had a tenant retention ratio for the improved land portfolio of 0.0% for the three months ended March 31, 2023. 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. 22 Table of Contents Recent Developments Acquisition Activity During the three months ended March 31, 2023, we acquired three industrial properties for a total purchase price of approximately $382.6 million. The properties were acquired from unrelated third parties using existing cash on hand, net proceeds from the issuance of common stock and debt. The following table sets forth the industrial properties we acquired during the three months ended March 31, 2023: Property Name Location Acquisition Date Number of Buildings Square Feet Improved Land Acreage Purchase Price (in thousands) 1 Stabilized Cap Rate 2 Countyline Phase IV 3 Hialeah, FL February 23, 2023 — — 121.0 $ 173,600 5.7 % 9th Street Long Island City, NY March 6, 2023 1 45,000 — 23,000 5.2 % Morton Newark, CA March 30, 2023 4 603,000 — 186,000 4.6 % Total/Weighted Average 5 648,000 121.0 $ 382,600 5.1 % 1 Excludes intangible liabilities and mortgage premiums, if any. The total aggregate initial investment was approximately $406.7 million, including $3.4 million in capitalized closing costs and acquisition costs and $40.2 million in assumed intangible liabilities and $19.5 million in other credits related to near term capital expenditures at Countyline Phase IV. 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, 2022 and in our other public filings. 3 Countyline Phase IV is a 121-acre project entitled for 2.2 million square feet of industrial distribution buildings located in Miami’s Countyline Corporate Park (“Countyline”), immediately adjacent to our seven buildings within Countyline. Countyline Phase IV, a landfill redevelopment adjacent to Florida’s Turnpike and the southern terminus of I-75, is expected to contain ten LEED-certified industrial distribution buildings at completion. 23 Table of Contents Development and Redevelopment Activity As of March 31, 2023, we had four properties under development or redevelopment that, upon completion, will consist of twelve buildings aggregating approximately 2.3 million square feet and one approximately 7.2 acre improved land parcel. The following table summarizes certain information with respect to the properties under development or redevelopment as of March 31, 2023: 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 Post-Development Acreage Estimated Stabilization Quarter % Pre-leased March 31, 2023 Berryessa $ 25,961 $ 25,214 $ 747 4.9 % n/a 7.2 Q3 2023 — % Countyline Phase IV Countyline Building 38 3 88,500 45,035 43,465 5.0 % 506,000 n/a Q3 2024 100.0 % Countyline Building 41 3 40,300 36,272 4,028 5.0 % 191,000 n/a Q4 2023 78.4 % 147th Street 18,060 7,092 10,968 6.1 % 34,000 n/a Q3 2024 — % Paterson Plank III 35,800 20,624 15,176 4.2 % 48,000 n/a Q4 2024 — % Total/Weighted Average, excluding land for future development 208,621 134,237 74,384 4.9 % 779,000 7.2 84.2 % Countyline Phase IV Countyline Phase IV Land 3 362,600 113,909 248,691 6.0 % 1,500,000 n/a Q4 2024-Q4 2026 — % Total land for future development 362,600 113,909 248,691 6.0 % 1,500,000 n/a — % Total/Weighted Average $ 571,221 $ 248,146 $ 323,075 5.6 % 2,279,000 7.2 28.8 % 1 Total expected investment for the properties include the initial purchase price, buyer’s due diligence and closing costs, estimated near-term redevelopment expenditures, capitalized interest and leasing costs necessary to achieve stabilization. 2 Estimated stabilized cap rates are calculated as estimated annualized cash basis net operating income for the properties 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 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, 2022 and in our other public filings. 3 Collectively, “Countyline Phase IV”, a 121-acre project entitled for 2.2 million square feet of industrial distribution buildings located in Countyline, immediately adjacent to our seven buildings within Countyline. Countyline Phase IV, a landfill redevelopment adjacent to Florida’s Turnpike and the southern terminus of I-75, is expected to contain ten LEED-certified industrial distribution buildings at completion. Public Offering On February 13, 2023, we completed a public offering of 5,750,000 shares of common stock at a price per share of $62.50, which included the underwriters’ full exercise of their option to purchase an additional 750,000 shares. The net proceeds of the offering were approximately $355.9 million after deducting the underwriting discount and offering costs of approximately $3.5 million. We used the net proceeds for acquisitions, including the three properties acquired during the three months ended March 31, 2023. 24 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 ($120.4 million remaining as of March 31, 2023) in amounts and at times as we determine from time to time. 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, redevelopments and repayment of indebtedness, including borrowings under our revolving credit facility. During the three months ended March 31, 2023, we issued an aggregate of 350,000 shares of common stock at a weighted average offering price of $63.30 per share under the $300 Million ATM Program, resulting in net proceeds of approximately $21.8 million and paying total compensation to the applicable sales agents of approximately $0.3 million. 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, 2024. Purchases made pursuant to this program, if any, 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 March 31, 2023, we had not repurchased any shares of our common stock pursuant to our share repurchase program. Dividend and Distribution Activity On May 2, 2023, our board of directors declared a cash dividend in the amount of $0.40 per share of our common stock payable on July 14, 2023 to the stockholders of record as of the close of business on June 30, 2023. Contractual Commitments As of May 2, 2023, we had two outstanding contracts with third-party sellers to acquire two industrial properties for a total purchase price of $62.9 million, as described under the heading “Material Cash Commitments” in this Quarterly Report on Form 10-Q. 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. Inflation The U.S. economy experienced a significant increase in inflation rates throughout 2022 and 2023. A wide variety of industries and sectors have been, and will continue to be, affected by increasing commodity prices. In recent years, inflation has increased construction costs, including tenant improvements and capital projects, goods and labor, and operating costs. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. In addition, leases with respect to approximately 65.0% of our total rentable square feet and improved land acreage expire within five years which enables us to seek to replace existing leases with new leases at the then-existing market rate. 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. Approxi ma tely 94.5% of our leased space includes fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years. 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 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. 25 Table of Contents The analysis of our results below for the three months ended March 31, 2023 and 2022 includes the changes attributable to same store properties. The same store pool for the comparison of the three months ended March 31, 2023 and 2022 includes all properties that were owned and in operation as of March 31, 2023 and since January 1, 2022 and excludes properties that were either disposed of prior to, held for sale to a third party or in development or redevelopment as of March 31, 2023. As of March 31, 2023, the same store pool consisted of 225 buildings aggregating approximately 13.2 million square feet representing approximately 83.1% of our total square feet owned and 37 improved land parcels consisting of approximately 127.1 acres representing approximately 78.7% of our total acreage owned. As of March 31, 2023, the non-same store properties, which we acquired, redeveloped, or sold during 2023 and 2022 or were held for sale or in development or redevelopment as of March 31, 2023, consisted of 32 buildings (including one building held for sale) aggregating approximately 2.7 million square feet, nine improved land parcels consisting of approximately 34.3 acres and four properties under development or redevelopment that, upon completion, will consist of 12 buildings aggregating approximately 2.3 million square feet and one approximately 7.2 acre improved land parcel. As of March 31, 2023 and 2022, our consolidated same store pool occupancy was approximately 98.5% and 97.3%, 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. 26 Table of Contents Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022: For the Three Months Ended March 31, 2023 2022 $ Change % Change (Dollars in thousands) Rental revenues 1 Same store $ 51,229 $ 46,661 $ 4,568 9.8 % Non-same store operating properties 2 8,309 3,680 4,629 125.8 % Total rental revenues 59,538 50,341 9,197 18.3 % Tenant expense reimbursements 1 Same store 13,087 12,645 442 3.5 % Non-same store operating properties 2 2,026 1,049 977 93.1 % Total tenant expense reimbursements 15,113 13,694 1,419 10.4 % Total revenues 74,651 64,035 10,616 16.6 % Property operating expenses Same store 15,339 15,261 78 0.5 % Non-same store operating properties 2 3,042 1,615 1,427 88.4 % Total property operating expenses 18,381 16,876 1,505 8.9 % Net operating income 3 Same store 48,977 44,045 4,932 11.2 % Non-same store operating properties 2 7,293 3,114 4,179 134.2 % Total net operating income $ 56,270 $ 47,159 $ 9,111 19.3 % Other costs and expenses Depreciation and amortization 18,159 14,982 3,177 21.2 % General and administrative 9,320 7,527 1,793 23.8 % Acquisition costs and other 48 28 20 71.4 % Total other costs and expenses 27,527 22,537 4,990 22.1 % Other income (expense) Interest and other income 1,963 121 1,842 1522.3 % Interest expense, including amortization (7,375) (5,081) (2,294) 45.1 % Total other income (expense) (5,412) (4,960) (452) 9.1 % Net income $ 23,331 $ 19,662 $ 3,669 18.7 % 1 Accounting Standards Update (“ASU”) No. 2018-11, Leases (Topic 842), 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 accounting principles generally accepted in the United States of America (“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 2023 and 2022 acquisitions and dispositions, nine improved land parcels, four properties under development or redevelopment and one property held for sale. 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. 27 Table of Contents Revenues. Total revenues increased approximately $10.6 million for the three months ended March 31, 2023 compared to the same period from the prior year due primarily to increased revenue on new and renewed leases, property acquisitions during 2023 and 2022 and an increase in occupancy rate. Cash rents on new and renewed leases totaling approximately 0.6 million square feet and 5.6 acres of improved land commencing during the three months ended March 31, 2023 increased approximately 69.3% compared to the previous rental rates for that same space. For both the three months ended March 31, 2023 and 2022, approximately $1.8 million was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants and approximately $0.1 million was recorded in lease termination revenue. Property operating expenses. Total property operating expenses increased approximately $1.5 million during the three months ended March 31, 2023 compared to the same period from the prior year. The increase in total property operating expenses was primarily due to an increase of approximately $1.4 million attributable to property acquisitions during 2023 and 2022 as well as increases in insurance premiums and real estate taxes related to annual rate increases. Depreciation and amortization. Depreciation and amortization increased approximately $3.2 million during the three months ended March 31, 2023 compared to the same period from the prior year primarily due to property acquisitions during 2023 and 2022. General and administrative expenses. General and administrative expenses increased approximately $1.8 million primarily due to increased compensation expenses including increased restricted stock amortization, LTIP expense and bonus expense, and an increase in the number of employees and salaries compared to the same period from the prior year. Acquisition costs and other. Acquisition costs and other for the three months ended March 31, 2023 remained consistent with the same period in the prior year. Interest and other income. Interest and other income increased approximately $1.8 million for the three months ended March 31, 2023 compared to the same period from the prior year primarily due to higher interest rates on our cash and cash equivalent balances. Interest expense, including amortization. Interest expense increased approximately $2.3 million for the three months ended March 31, 2023 compared to the same period from the prior year. This increase was primarily due to borrowing the full amount available under the new $100.0 million unsecured term loan on September 2, 2022 and higher average interest rates on the unsecured term loans and credit facility during the three months ended March 31, 2023. 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 (five to seven years), positioning us to re-price parts of our capital structure as our rental rates change with market conditions. 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, and proceeds from the issuance of common stock and perpetual preferred stock. We may also assume debt in connection with property acquisitions which may have a higher loan-to-value ratio. 28 Table of Contents 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 and property redevelopments 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 unsecured and secured 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. 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. Equity Sources of Liquidity On February 13, 2023, we completed a public offering of 5,750,000 shares of common stock at a price per share of $62.50, which included the underwriters’ full exercise of their option to purchase an additional 750,000 shares. The net proceeds of the offering were approximately $355.9 million after deducting the underwriting discount and offering costs of approximately $3.5 million. We used the net proceeds for acquisitions, including the three properties acquired during the three months ended March 31, 2023. The following sets forth certain information regarding our current at-the-market common stock offering program as of March 31, 2023: ATM Stock Offering Program Date Implemented Maximum Aggregate Offering Price (in thousands) Aggregate Common Stock Available (in thousands) $300 Million ATM Program June 11, 2021 $ 300,000 $ 120,428 The table below sets forth the activity under our at-the-market common stock offering programs during the three months ended March 31, 2023: For the Three Months Ended Shares Sold Weighted Average Price Per Share Net Proceeds (in thousands) Sales Commissions (in thousands) March 31, 2023 350,000 $ 63.30 $ 21,834 $ 321 Debt Sources of Liquidity As of March 31, 2023, we had $100.0 million of senior unsecured notes that mature in July 2024, $50.0 million of senior unsecured notes that mature in July 2026, $50.0 million of senior unsecured notes that mature in October 2027, $100.0 million of senior unsecured notes that mature in July 2028, $100.0 million of senior unsecured notes that mature in December 2029, $125.0 million of senior unsecured notes that mature in August 2030, and $50.0 million of senior unsecured notes that mature in July 2031 (collectively, the “Senior Unsecured Notes”). Our Sixth Amended and Restated Senior Credit Agreement (as amended, the “Amended Facility”) consists of a $400.0 million revolving credit facility that matures in August 2025, a $100.0 million term loan that matures in January 2027 and a $100.0 million term loan that matures in January 2028. As of March 31, 2023 and March 31, 2022, there were no borrowings outstanding on the revolving credit facility and $200.0 million and $100.0 million, respectively, of borrowings outstanding on the term loans. The aggregate amount of the Amended Facility may be increased by up to an additional $500.0 million to a maximum amount not to exceed $1.1 billion, subject to the approval of the administrative agent and the identification of lenders willing to make available additional amounts. Outstanding borrowings under the Amended Facility are limited to the lesser of (i) the sum of the $400.0 million revolving credit facility, the $100.0 million term loan maturing in January 2027 and the $100.0 million term loan maturing in January 2028, or (ii) 60.0% of the value of the unencumbered properties. Interest on the Amended Facility, including the term loans, is generally to be paid based upon, at our option, either (i) the Secured Overnight Financing Rate (“SOFR”) plus the applicable SOFR margin or (ii) the applicable base rate, which is the greatest of the administrative 29 Table of Contents agent’s prime rate, 0.50% above the federal funds effective rate, thirty-day SOFR plus the applicable SOFR margin for SOFR rate loans under the Amended Facility plus 1.25%, or 1.25% per annum. The applicable SOFR margin will range from 1.10% to 1.55% (1.10% as of March 31, 2023) for the revolving credit facility and 1.25% to 1.75% (1.25% as of March 31, 2023) for the term loans, depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value and includes a 10 basis points SOFR credit adjustment. The Amended Facility requires quarterly payments of an annual facility fee in an amount ranging from 0.15% to 0.30%, depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value. The Amended 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 Amended Facility and the Senior Unsecured Notes are not secured by our properties or by interests in the subsidiaries that hold such properties. The Amended Facility and the Senior Unsecured Notes include a series of financial and other covenants with which we must comply. We were in compliance with the covenants under the Amended Facility and the Senior Unsecured Notes as of March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, we held cash and cash equivalents totaling approximately $11.1 million and $26.4 million, respectively. The following tables summarize our debt maturities and principal payments as of March 31, 2023 and our market capitalization, capitalization ratios, Adjusted EBITDA, interest coverage, fixed charge coverage and debt ratios as of and for the three months ended March 31, 2023 and 2022 (dollars in thousands, except per share data): Credit Facility Term Loan Senior Unsecured Notes Total Debt 2023 (9 months) $ — $ — $ — $ — 2024 — — 100,000 100,000 2025 — — — — 2026 — — 50,000 50,000 2027 — 100,000 50,000 150,000 Thereafter — 100,000 375,000 475,000 Total Debt — 200,000 575,000 775,000 Deferred financing costs, net — (1,032) (3,027) (4,059) Total Debt, net $ — $ 198,968 $ 571,973 $ 770,941 Weighted average interest rate n/a 6.0% 3.1% 3.9% 30 Table of Contents As of March 31, 2023 As of March 31, 2022 Total Debt, net $ 770,941 $ 720,864 Equity Common Stock Shares Outstanding 1 83,122,297 75,525,288 Market Price 2 $ 64.60 $ 74.05 Total Equity 5,369,700 5,592,648 Total Market Capitalization $ 6,140,641 $ 6,313,512 Total Debt-to-Total Investments in Properties 3 20.2% 23.7% Total Debt-to-Total Market Capitalization 4 12.6% 11.4% Floating Rate Debt as a % of Total Debt 5 25.8% 13.8% Net Income $ 23,331 $ 19,662 Adjusted EBITDA 6 $ 51,951 $ 42,582 Interest Coverage 7 7.0 x 8.4 x Fixed Charge Coverage 8 6.5 x 7.4 x Total Debt-to-Adjusted EBITDA 9 3.7 x 4.2 x Weighted Average Maturity of Total Debt (years) 5.1 5.7 1 Includes 377,909 and 308,677 shares of unvested restricted stock outstanding as of March 31, 2023 and 2022, respectively. Also includes 512,459 and 423,012 shares held in the Deferred Compensation Plan as of March 31, 2023 and 2022, respectively. 2 Closing price of a share of our common stock on the New York Stock Exchange on March 31, 2023 and 2022, 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, including one property held for sale as of March 31, 2023 with a gross book value of approximately $14.8 million. 4 Total debt-to-total market capitalization is calculated as total debt, including premiums and net of deferred financing costs, divided by total market capitalization. 5 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. 6 Earnings before interest, taxes, gains (losses) from sales of property, depreciation and amortization, acquisition costs and stock-based compensation (“Adjusted EBITDA”) for the three months ended March 31, 2023 and 2022, 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. 7 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. 8 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. 9 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 three months ended March 31, 2023: For the Three Months Ended Security Dividend per Share Declaration Date Record Date Date Paid March 31, 2023 Common stock $ 0.40 February 7, 2023 March 31, 2023 April 6, 2023 31 Table of Contents Sources and Uses of Cash Our principal sources of cash are cash from operations, borrowings under loans payable, draws on our Amended 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 $38.8 million for the three months ended March 31, 2023 compared to approximately $28.0 million for the three months ended March 31, 2022. This increase in cash provided by operating activities is primarily attributable to additional cash flows generated from the properties acquired during 2023 and 2022 and increased rents on new and renewed leases at our same store properties. Cash From Investing Activities. Net cash used in investing activities was approximately $387.4 million and $96.8 million for the three months ended March 31, 2023 and 2022, respectively, which consisted primarily of cash paid for property acquisitions of approximately $364.6 million and $68.1 million, respectively, and additions to capital improvements of approximately $22.8 million and $28.8 million, respectively. Cash From Financing Activities. Net cash provided by financing activities was approximately $334.1 million for the three months ended March 31, 2023, which consisted primarily of approximately $365.5 million in net proceeds from the issuance of common stock, partially offset by approximately $30.8 million in equity dividend payments. Net cash used in financing activities was approximately $26.5 million for the three months ended March 31, 2022, which consisted primarily of approximately $25.6 million in equity dividend payments. Critical Accounting Policies And Estimates A summary of our critical accounting policies is set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 and in the condensed notes to consolidated financial statements in this Quarterly Report on Form 10-Q. Material Cash Commitments As of May 2, 2023, we had two outstanding contracts with third-party sellers to acquire two industrial properties for a total purchase price of $62.9 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 our material cash commitments due by period as of March 31, 2023 (dollars in thousands): Material Cash Commitments Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total Debt $ — $ 100,000 $ 300,000 $ 375,000 $ 775,000 Debt interest payments 18,015 30,405 25,538 19,893 93,851 Operating lease commitments 662 1,384 1,350 723 4,119 Purchase obligations 1 62,926 — — — 62,926 Total $ 81,603 $ 131,789 $ 326,888 $ 395,616 $ 935,896 1 As of May 2, 2023 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. 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 32 Table of Contents 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 months ended March 31, 2023 and 2022 (dollars in thousands except per share data): For the Three Months Ended March 31, 2023 2022 $ Change % Change Net income $ 23,331 $ 19,662 $ 3,669 18.7 % Depreciation and amortization 18,159 14,982 3,177 21.2 % Non-real estate depreciation (32) (23) (9) 39.1 % Allocation to participating securities 1 (189) (141) (48) 34.0 % Funds from operations attributable to common stockholders $ 41,269 $ 34,480 $ 6,789 19.7 % Basic FFO per common share $ 0.52 $ 0.46 $ 0.06 13.0 % Diluted FFO per common share $ 0.51 $ 0.46 $ 0.05 10.9 % Weighted average basic common shares 79,895,886 75,199,529 Weighted average diluted common shares 80,344,742 75,284,498 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 373,985 and 303,666 of weighted average unvested restricted shares outstanding for the three months ended March 31, 2023 and 2022, respectively. FFO increased by approximately $6.8 million for the three months ended March 31, 2023 compared to the same period from the prior year due primarily to property acquisitions during 2022 and 2023 as well as same store NOI growth of approximately $4.9 million for the three months ended March 31, 2023 compared to the same period from the prior year. The FFO increase was partially offset by increased weighted average common shares outstanding, increased interest expense due to higher average interest rates on the unsecured term loans and credit facility and increased general and administrative expenses. The increase in general and administrative expenses was primarily due to increased compensation expenses, including increased restricted stock amortization, LTIP expense and bonus expense, and an increase in the number of employees and salaries for the three months ended March 31, 2023 compared to the same period from the prior year. 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. 33 Table of Contents The following table reflects the calculation of Adjusted EBITDA reconciled from net income for the three months ended March 31, 2023 and 2022 (dollars in thousands): For the Three Months Ended March 31, 2023 2022 $ Change % Change Net income $ 23,331 $ 19,662 $ 3,669 18.7 % Depreciation and amortization 18,159 14,982 3,177 21.2 % Interest expense, including amortization 7,375 5,081 2,294 45.1 % Stock-based compensation 3,038 2,829 209 7.4 % Acquisition costs and other 48 28 20 71.4 % Adjusted EBITDA $ 51,951 $ 42,582 $ 9,369 22.0 % 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 March 31, 2023 and since January 1, 2022 and excludes properties that were either disposed of prior to, held for sale to a third party or in development or redevelopment as of March 31, 2023. As of March 31, 2023, the same store pool consisted of 225 buildings aggregating approximately 13.2 million square feet representing approximately 83.1% of our total square feet owned and 37 improved land parcels containing approximately 127.1 acres representing approximately 78.7% of our total acreage owned. 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. The following table reflects the calculation of NOI, same store NOI and cash-basis same store NOI reconciled from net income for the three months ended March 31, 2023 and 2022 (dollars in thousands): For the Three Months Ended March 31, 2023 2022 $ Change % Change Net income 1 $ 23,331 $ 19,662 $ 3,669 18.7 % Depreciation and amortization 18,159 14,982 3,177 21.2 % General and administrative 9,320 7,527 1,793 23.8 % Acquisition costs and other 48 28 20 71.4 % Total other income and expenses 5,412 4,960 452 9.1 % Net operating income 56,270 47,159 9,111 19.3 % Less non-same store NOI (7,293) 2 (3,114) 2 (4,179) 134.2 % Same store NOI $ 48,977 $ 44,045 $ 4,932 11.2 % Less straight-line rents and amortization of lease intangibles 3 (2,837) (4,090) 1,253 (30.6) % Cash-basis same store NOI $ 46,140 $ 39,955 $ 6,185 15.5 % Less termination fee income (20) (148) 128 (86.5) % Cash-basis same store NOI excluding termination fees $ 46,120 $ 39,807 $ 6,313 15.9 % 1 Includes approximately $12,000 and $0.1 million of lease termination income for the three months ended March 31, 2023 and 2022, respectively. 2 Includes 2022 and 2023 acquisitions and dispositions, nine improved land parcels, four properties under development or redevelopment and one property held for sale. 3 Includes straight-line rents and amortization of lease intangibles for the same store pool only. 34 Table of Contents Cash-basis same store NOI increased by approximately $6.2 million for the three months ended March 31, 2023 compared to the same period from the prior year primarily due to increased rental revenue on new and renewed leases and contractual rent increases on pre-existing leases. For the three months ended March 31, 2023 and 2022, total contractual rent abatements of approximately $0.8 million and $1.0 million, respectively, were given to certain tenants in the same-store pool and approximately $19,000 and $0.1 million, respectively, in lease termination income was received from certain tenants in the same store pool. In addition, approximately $0.8 million of the increase in cash-basis same store NOI for the three months ended March 31, 2023 related to properties that were acquired vacant or with near term expirations in 2021.