Index to Financial Statements


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☒
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

2019


OR

☐
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to                

Commission file number001-34603

Terreno Realty Corporation

(Exact Name of Registrant as Specified in Its Charter)

Maryland27-1262675

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

101 Montgomery Street, Suite 200

San Francisco, CA

94104
(Address of Principal Executive Offices)(Zip Code)

Registrant’s telephone number, including area code:(415) 655-4580

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol (s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value per shareTRNONew York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒   No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” inRule 12b-2 of the Exchange Act. (Check one):

Act:
Large accelerated filer☒☒Accelerated filer☐
Non-accelerated filer☐☐  (Do not check if a smaller reporting company)Smaller reporting company☐
Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☐

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Aggregate market value of the voting andnon-voting common equity held bynon-affiliates computed by reference to the closing price, as reported by the New York Stock Exchange, at which the common equity was last sold, as of June 30, 2017,28, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter: $1,714,958,319.$3,180,085,144. (For this computation, the Registrant has excluded the market


value of all shares of its common stock reported as beneficially owned by executive officers and directors of the Registrant. Such exclusion shall not be deemed to constitute and admission that any such person is an affiliate of the Registrant).

The registrant had 55,469,26367,388,281 shares of its common stock, $0.01 par value per share, outstanding as of February 7, 2018.

4, 2020.

Documents Incorporated by Reference

Part III of this Annual Report on Form10-K incorporates by reference portions of Terreno Realty Corporation’s Proxy Statement for its 20182020 Annual Meeting of Stockholders, which the registrant anticipates will be filed with the Securities and Exchange Commission no later than 120 days after the end of its 20172019 fiscal year pursuant to Regulation 14A.



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Terreno Realty Corporation


Annual Report on Form10-K

for the Year Ended December 31, 2017

2019


Table of Contents

Part I:

Item 1
2

Item 1

Business

2

Item 1A

7
6

Item 1B

29
24

Item 2

29
24

Item 3

32
28

Item 4

32
28

Part II:

Item 5

33
29

Item 6

36
30

Item 7

37
31

Item 7A

61
56

Item 8

62
56

Item 9

62
56

Item 9A

62
57

Item 9B

64
59

Part III:

Item 10

64
59

Item 11

64
59

Item 12

64
59

Item 13

64
59

Item 14

64
59

Part IV:

Item 15

65
60

60
Item 1665
60

Item 16

Form10-K Summary

65



Index to Financial Statements


FORWARD-LOOKING STATEMENTS

This Annual Report on Form10-K 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”, “enthusiastic”, “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 in this Annual Report on Form10-K, including those set forth under the headings “Risk Factors”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

•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, ornon-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;

•our failure to qualify or maintain our status as a real estate investment trust (“REIT”), and possible adverse changes to tax laws;

Index to Financial Statements
•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.


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PART I



Item 1.Business.

Item 1.  Business.
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 93.5%81.5% of our total portfolio square footageannualized base rent as of December 31, 2017)2019), flex (including light industrial and research and development, or R&D) (approximately 5.1%7.2%), transshipment (approximately 5.5%) and transshipmentimproved land (approximately 1.4%5.8%). 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 December 31, 2017,2019, we owned 196a total of 220 buildings aggregating approximately 13.013.3 million square feet, and ten19 improved land parcels consisting of 47.9approximately 77.6 acres which we purchased for an aggregate purchase price ofand four properties under redevelopment expected to contain approximately $1.5 billion. As of December 31, 2017, our properties0.5 million square feet upon completion. The buildings and improved land parcels were approximately 97.3%96.8% and 92.0% leased, respectively, to 426493 customers, the largest of which accounted for approximately 5.1%3.6% of our total annualized base rent.

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.

Our Investment Strategy

We acquire, own and operate industrial propertiesreal 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.

As described in more detail below, we invest in several types of industrial real estate, including warehouse/distribution, flex (including light industrial and R&D), transshipment and transshipment.improved land. 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.

Industrial Facility General Characteristics

Warehouse / distribution (approximately 93.5%81.5% of our total portfolio square footageannualized base rent as of December 31, 2017)

2019)
•Single and multiple tenant facilities that typically serve tenants greater than 10,000 square feet of space

•Generally less than 20% office space

•Typical clear height from 18 feet to 36 feet

•May include production/manufacturing areas

Index to Financial Statements
•Interior access via dock high and/or grade level doors

•Truck court for large and small truck distribution options, possibly including staging for a high volume of truck activity and/or trailer storage

Flex (including light industrial and R&D, approximately 5.1%7.2% of our total portfolio square footageannualized base rent as of
December 31, 2017)

2019)
•Single and multiple tenant facilities that typically serve tenants less than 10,000 square feet of space

•Facilities generally accommodate both office and warehouse/manufacturing activities

•Typically has a larger amount of office space and shallower bay depths than warehouse/distribution facilities

•Parking consistent with increased office use

•Interior access via grade level and/or dock high doors

•Staging for moderate truck activity

•May include a showroom, service center, or assembly/light manufacturing component

•Enhanced landscaping

Transshipment (approximately 1.4%5.5% of our total portfolio square footageannualized base rent as of December 31, 2017)

2019)
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•Includes truck terminals and other transshipment facilities, which serve both single and multiple tenants

•Typically has a high number of dock high doors, shallow bay depth and lower clear height

•Staging for a high volume of truck activity and trailer storage

Improved land (approximately 5.8% of our total annualized base rent as of December 31, 2019)
•Used for truck, trailer and container storage and/or car parking
•May be redeveloped in the future

We selected our target markets by drawing upon the experience of our executive management investing and operating in over 50 global industrial markets located in North America, Europe and Asia, the fundamentals of supply and demand, and in anticipation of trends in logistics patterns resulting from population changes, regulatory and physical constraints, changes in technology,e-commerce, potential long term increases in carbon prices the economic and environmental benefits of reducing vehicle miles traveled and other factors. We believe that our target markets have attractive long termlong-term investment attributes. We target assets with characteristics that include, but are not limited to, the following:

•Located in high population coastal markets;

•Close proximity to transportation infrastructure (such as sea ports, airports, highways and railways);

•Situated in supply-constrained submarkets with barriers to new industrial development, as a result of physical and/or regulatory constraints;

•Functional and flexible layout that can be modified to accommodate single and multiple tenants;

•Acquisition price at a discount to the replacement cost of the property;

•Potential for enhanced return throughre-tenanting or operational or physical improvements; and

•Opportunity for higher and better use of the property over time.

In general, we prefer to utilize local third-party property managers forday-to-day property management. We believe outsourcing property management is cost effective and provides us with operational flexibility and is a source of acquisition opportunities. We may directly manage properties in the future if we determine such direct property management is in our best interest.

Index to Financial Statements

We have no current intention to acquire undeveloped or unimproved industrial land or to pursue greenfieldground-up development. However,Nevertheless, we may pursue redevelopment, renovation and expansion opportunities of properties that we own, acquire properties and improved land parcels with the intent to redevelop in the near-term, orand acquire adjacent land to expand our existing facilities.

We expect that we will continue to acquire the significant majority of our investments as equity interests in individual properties, portfolios of properties or improved industrial land parcels which may be rented without a building in place. We may also acquire industrial properties through the acquisition of other corporations or entities that own industrial real estate. We will opportunistically targetmake investments in debt secured by industrial real estate that would otherwise meet our investment criteria with the intention of ultimately acquiring the underlying real estate. We currently do not intend to target specific percentages of holdings of particular types of industrial properties. This expectation is based upon prevailing market conditions and may change over time in response to different prevailing market conditions.

The properties we acquire may be stabilized (fully leased) or unstabilized (have near term lease expirations or be partially or fully vacant). During the period from February 16, 2010 to December 31, 2017,2019, we have stabilized 5874 properties.

We sell properties from time to time when we believe the prospective total return from a property is particularly low relative to its market value or the market value of the property is significantly greater than its estimated replacement cost. Capital from such sales is reinvested into properties that are expected to provide better prospective returns or returned to shareholders. We have disposed of eleven19 properties since inception in 2010 for a cumulativean aggregate sales price of approximately $160.4$291.4 million and a total gain of approximately $55.1$93.1 million.

Competitive Strengths

We believe we distinguish ourselves from our competitors through the following competitive advantages:

•Focused Investment Strategy. We invest exclusively in six major coastal U.S. markets and focus on infill locations. We selected our six target markets based upon the experience of our executive management investing and operating in over 50 global industrial markets located in North America, Europe and Asia, the fundamentals of supply and demand, and in anticipation of trends in logistics patterns resulting from population changes, regulatory and physical constraints, changes in technology,e-commerce, potential long term increases in carbon prices and other factors. We have no current intention to acquire undeveloped or unimproved land or pursue greenfieldground-up development, but we may pursue redevelopment and expansion activities.

•Highly Aligned Compensation Structure. We believe that executive compensation should be closely aligned with long-term stockholder value creation. As a result, all of the long-term equity incentive compensation of our executive officers is based solely on our total shareholder return exceeding the total shareholder return of the MSCI U.S. REIT Index (RMS) or the FTSE NAREIT Equity Industrial Index.

•Commitment to Strong Corporate Governance. We are committed to strong corporate governance, as demonstrated by the following:

•Focused Investment Strategy. We invest exclusively in six major coastal U.S. markets and focus on infill locations. We selected our six target markets based upon the experience of our executive management investing and operating in over 50 global industrial markets located in North America, Europe and Asia, the fundamentals of supply and demand,
3

and in anticipation of trends in logistics patterns resulting from population changes, regulatory and physical constraints, changes in technology, e-commerce, the economic and environmental benefits of reducing vehicle miles traveled and other factors. We have no current intention to acquire undeveloped or unimproved land or pursue greenfield ground-up development, but we pursue redevelopment, renovation and expansion activities.

•Highly Aligned Compensation Structure. We believe that executive compensation should be closely aligned with long-term stockholder value creation. As a result, the long-term equity incentive compensation of our executive officers is based primarily on our total shareholder return exceeding the total shareholder return of the MSCI U.S. REIT Index (RMS) or the FTSE National Association of Real Estate Investment Trusts (“Nareit”) Equity Industrial Index.

•Commitment to Strong Corporate Governance. We are committed to strong corporate governance, as demonstrated by the following:
◦all members of our board of directors serve annual terms;

◦we have adopted a majority voting standard innon-contested director elections;

◦we have opted out of three Maryland anti-takeover provisions and, in the future, we may not opt back in to these provisions without stockholder approval;

◦we designed our ownership limits solely to protect our status as a REIT and not for the purpose of serving as an anti-takeover device; and

Index to Financial Statements
◦we have no stockholder rights plan. In the future, we will not adopt a stockholder rights plan unless our stockholders approve in advance the adoption of such a plan or, if adopted by our board of directors, we will submit the stockholder rights plan to our stockholders for a ratification vote within 12 months of adoption or the plan will terminate.

Our Financing Strategy

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 adebt-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 (5-7 years), positioning us tore-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 additional perpetual preferred stock. Fitch Ratings assigned us an issuer rating ofBBB- 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 higherloan-to-value.

loan-to-value ratio.

Our Corporate Structure

We are a Maryland corporation formed on November 6, 2009 and have been publicly held and subject to U.S. Securities and Exchange Commission, or SEC, reporting obligations since 2010. We are not structured as an Umbrella Partnership Real Estate Investment Trust, or UPREIT, although we could put in place a similar structure to facilitate an acquisition if needed. We currently own our properties indirectly through subsidiaries and may utilize one or more taxable REIT subsidiaries as appropriate.

4

Our Tax Status

We elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year ended December 31, 2010. We believe that our organization and method of operation has enabled and will continue to enable us to meet the requirements for qualification and taxation as a REIT for federal income tax purposes. To maintain REIT status we must meet a number of organizational and operational requirements, including a requirement that we annually distribute at least 90% of our net taxable income to our stockholders, excluding net capital gains. As a REIT, we generally will not be subject to federal income tax on REIT taxable income we currently distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax at regular corporate rates. Even if we qualify for taxation as a REIT, we may be

Index to Financial Statements

subject to some federal, state and local taxes on our income or property and the income of our taxable REIT subsidiaries, if any, will be subject to taxation at regular corporate rates. We do not currently own any taxable REIT subsidiaries but may in the future.

Competition

We believe the current market for industrial real estate acquisitions to be competitive. We compete for real property investments with pension funds and their advisors, bank and insurance company investment accounts, other public and private real estate investment companies, including other REITs, real estate limited partnerships, owner-users, individuals and other entities engaged in real estate investment activities, some of which have greater financial resources than we do. We believe the leasing of real estate to be highly competitive. We experience competition for customers from owners and managers of competing properties. As a result, we may have to provide free rental periods, incur charges for tenant improvements or offer other inducements, all of which may have an adverse impact on our results of operations.

Environmental Matters

The industrial properties that we own and will acquire are subject to various federal, state and local environmental laws. Under these laws, courts and government agencies have the authority to require us, as owner of a contaminated property, to clean up the property, even if we did not know of or were not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated, and therefore it is possible we could incur these costs even after we sell some of our properties. In addition to the costs of cleanup, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow using the property as collateral or to sell the property. Under applicable environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, pay for theclean-up clean up of that facility if it becomes contaminated and threatens human health or the environment.

Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos at one of our properties may seek to recover damages if he or she suffers injury from the asbestos. Lastly, some of these environmental laws restrict the use of a property or place conditions on various activities. An example would be laws that require a business using chemicals to manage them carefully and to notify local officials that the chemicals are being used.

We could be responsible for any of the costs discussed above. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could adversely affect the funds available for distribution to our stockholders. We generally obtain “Phase I environmental site assessments”, or ESAs, on each property prior to acquiring it. However, these ESAs may not reveal all environmental costs that might have a material adverse effect on our business, assets, results of operations or liquidity and may not identify all potential environmental liabilities.

In general, we utilize local third-party property managers forday-to-day property management and will rely on these third parties to operate our industrial properties in compliance with applicable federal, state and local environmental laws in their daily operation of the respective properties and to promptly notify us of any environmental contaminations or similar issues. As a result, we may become subject to material environmental liabilities of which we are unaware. We can make no assurances that (1) future laws or regulations will not impose material environmental liabilities on us, or (2) the environmental condition of our industrial properties will not be affected by the condition of the properties in the vicinity of our industrial properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to us. We were not aware of any significant or material exposures as of December 31, 20172019 and 2016.

2018.

Employees

As of February 7, 2018,6, 2020, we have 2224 employees. None of our employees is a member of any union.

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5

Available Information

We maintain an internet website at the following address:http://terreno.com. The information on our website is neither part of nor incorporated by reference in this Annual Report on Form10-K. We make available, free of charge, on or through our website certain reports and amendments to those reports that we file with or furnish to the SEC in accordance with the Exchange Act. These include our annual reports on Form10-K, our quarterly reports on Form10-Q, our current reports on Form8-K and exhibits and amendments to these reports, and Section 16 filings. Our Code of Business Conduct and Ethics is also available on our website. We intend to disclose any amendments or waivers to our Code of Business Conduct and Ethics that apply to any of our executive officers on our website. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. You may also obtain our reports by accessing the EDGAR database at the SEC’s website athttp://www.sec.gov.


Item 1A.Risk Factors.

Item 1A.  Risk Factors.
The following risk factors and other information included in this Annual Report on Form10-K should be carefully considered. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us or that we may currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be adversely affected. Investors should also refer to our quarterly reports on Form10-Q and current reports on Form8-K for any material updates to these risk factors.


Risks Related to Our Business and Our Properties

Our long-term growth will depend, in part, upon future acquisitions of properties, and we may be unable to consummate acquisitions on advantageous terms, the acquired properties may not perform as we expect, or we may be unable to quickly and efficiently integrate our new acquisitions into our existing operations.

We intend to continue to acquire industrial properties in our six target markets. The acquisition of properties entails various risks, including the risks that our investments may not perform as well as we had expected, that we may be unable to quickly and efficiently integrate our new acquisitions into our existing operations and that our cost estimates for bringing an acquired property up to market standards may prove inaccurate. In addition, we cannot assure you of the availability of investment opportunities in our targeted markets at attractive pricing levels or at all. In the event that such opportunities are not available in our targeted markets as we expect, our ability to execute our business plan and realize our projections for growth may be materially adversely affected. Further, we face significant competition for attractive investment opportunities from other well-capitalized real estate investors, including pension funds and their advisors, bank and insurance company investment accounts, other public and private real estate investment companies, including other REITs, real estate limited partnerships, owner-users, individuals and other entities engaged in real estate investment activities, some of which have greater financial resources than we do and a greater ability to borrow funds to acquire properties. This competition increases as investments in real estate become increasingly attractive relative to other forms of investment. As a result of competition, we may be unable to acquire properties as we desire or the purchase price may be significantly elevated.

In addition, we expect to finance future acquisitions through a combination of debt and equity financing including borrowings under our revolving credit facility, term loans, issuance of unsecured debt securities, debt secured by individual properties or pools of properties, the use of retained cash flows and the issuance of a combination of long-term debt and common and perpetual preferred stock, which may not be available at all or on advantageous terms and which could adversely affect our cash flows. Any of the above risks could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock and our preferred stock.

We may make acquisitions that pose integration and other risks that could harm our business.

We may be required to incur debt and expenditures and issue additional shares of our common stock or issue shares of preferred stock to pay for industrial properties that we may acquire, which may dilute our

Index to Financial Statements

stockholders’ ownership interests and may reduce or eliminate our profitability. These acquisitions may also expose us to risks such as:

•the possibility that we may not be able to successfully integrate acquired properties into our operations;

•the possibility that additional capital expenditures may be required;

•the possibility that senior management may be required to spend considerable time negotiating agreements and integrating acquired properties;

•the possible loss or reduction in value of acquired properties;

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•the possibility ofpre-existing undisclosed liabilities regarding acquired properties, including but not limited to environmental or asbestos liability, for which our insurance may be insufficient or for which we may be unable to secure insurance coverage;

•the possibility that a concentration of our industrial properties in Los Angeles, the San Francisco Bay Area and Seattle may increase our exposure to seismic activity, especially if these industrial properties are located on or near fault zones; and

•the possibility that we may not meet our estimated forecasts related to stabilized cap rates.

We expect acquisition costs, including capital expenditures required to render industrial properties operational, to increase in the future. If our revenue does not keep pace with these potential acquisition costs, we may not be able to maintain our current or expected earnings as we absorb these additional expenses. There is no assurance we would successfully overcome these risks or any other problems encountered with these acquisitions.

If we cannot obtain additional financing, our growth will be limited.

If adverse conditions in the credit markets — in particular with respect to real estate — materially deteriorate, our business could be materially and adversely affected. Our long-term ability to grow through investments in industrial properties, including our ability to realize our projections for growth, will be limited if we cannot obtain additional financing on favorable terms or at all. In the future, we will rely on equity and debt financing, including issuances of common and perpetual preferred stock, borrowings under our revolving credit facility, term loans, issuances of unsecured debt securities and debt secured by individual properties or pools of properties, to finance our acquisition, redevelopment, renovation and expansion activities and for working capital. If we are unable to obtain equity or debt financing from these or other sources, or to refinance existing indebtedness upon maturity, our financial condition and results of operations would likely be adversely affected. Market conditions may make it difficult to obtain additional financing, and we cannot assure you that we will be able to obtain additional debt or equity financing or that we will be able to obtain it on favorable terms.

In addition, to qualify as a REIT, we are required to distribute at least 90% of our taxable income (determined before the deduction for dividends paid and excluding any net capital gains) each year to our stockholders, and we generally expect to make distributions in excess of such amount. As a result, our ability to retain earnings to fund acquisitions, redevelopment, renovation and expansion, if any, or other capital expenditures will be limited.

The availability and timing of cash distributions is uncertain.

We have made regular quarterly cash distributions (which we also refer to as dividends, in this Annual Report on Form10-K and in the other documents we file with the SEC) to our stockholders, and we intend to continue to pay regular quarterly cash distributions. However, we bear all expenses incurred by our operations, and the funds generated by our operations, after deducting these expenses, may not be sufficient to cover desired levels of distributions to our stockholders. In addition, our board of directors, in its discretion, may retain any

Index to Financial Statements

portion of such cash for working capital. Our ability to make distributions to our stockholders also will depend on our levels of retained cash flows, which we intend to use as a source of investment capital. We cannot assure our stockholders that sufficient funds will be available to pay distributions. Our corporate strategy is to fund the payment of quarterly distributions to our stockholders entirely from distributable cash flows. However, we may fund our quarterly distributions to our stockholders from a combination of available cash flows, net of recurring capital expenditures, and proceeds from borrowings and property dispositions. In the event we are unable to consistently fund future quarterly distributions to our stockholders entirely from distributable cash flows, the value of our shares may be negatively impacted.

We depend on key personnel.

Our success depends to a significant degree upon the contributions of certain key personnel, including but not limited to, our chairman and chief executive officer and our president, each of whom would be difficult to replace. If any of our key personnel were to cease employment with us, our operating results could suffer. Our ability to retain our senior management group or to attract suitable replacements should any members of the senior management group leave is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely impact our financial condition and cash flows. Further, such a loss could be negatively perceived in the capital markets. We have not obtained and do not expect to obtain key man life insurance on any of our key personnel.

We also believe that, as we expand, our future success depends, in large part, upon our ability to hire and retain highly skilled managerial, investment, financial and operational personnel. Competition for such personnel is intense, and we cannot assure our stockholders that we will be successful in attracting and retaining such skilled personnel.

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Our investments are concentrated in the industrial real estate sector, and our business would be adversely affected by an economic downturn in that sector.

Our investments in real estate assets are concentrated in the industrial real estate sector. This concentration may expose us to the risk of economic downturns in this sector to a greater extent than if our business activities included a more significant portion of other sectors of the real estate industry.

Events or occurrences that affect areas in which our properties are located may materially adversely impact our financial results.

In addition to general, regional, national and international economic conditions that may materially adversely affect our business and financial results, our operating performance will be materially adversely impacted by adverse economic conditions in the specific markets in which we operate and particularly in the markets in which we have significant concentrations of properties. For example, as of December 31, 2017,2019, approximately 24.3%26.7% of our rentable square feet wasand approximately 62.8% of our improved land parcels were located in Northern New Jersey/New York City, representing a combined percentage of approximately 25.6% of our total annualized base rent, and approximately 20.3% of our rentable square feet was located in Los Angeles, representing approximately 18.5%30.9% of our total annualized base rent. See “Item 2 – Properties” in this Annual Report on Form10-K for additional information regarding our ownership of properties in our markets. Any downturn in the economy in the real estate market or any of our markets and any failure to accurately predict the timing of any economic improvement in these markets could cause our operations and our revenue and cash available for distribution, including cash available to pay distributions to our stockholders, to be materially adversely affected.

We may be unable to renew leases, lease vacant space, including vacant space resulting from tenant defaults, orre-lease space as leases expire.

We cannot assure you that leases at our properties will be renewed or that such properties will bere-leased at net effective rental rates equal to or above the then current average net effective rental rates or at all. In

Index to Financial Statements

addition, we may be required to grant concessions or fund improvements. If the rental rates for our properties decrease, our tenants do not renew their leases or we do notre-lease a significant portion of our available space, including vacant space resulting from tenant defaults, and space for which leases are scheduled to expire, our financial condition, results of operations, cash flows, cash available for distribution to stockholders, per share trading price of our common stock and our ability to satisfy our debt service obligations could be materially adversely affected. In addition, if we are unable to renew leases orre-lease a property, the resale value of that property could be diminished because the market value of a particular property will depend in part upon the value of the leases of such property.

We face potential adverse effects from the bankruptcies or insolvencies of tenants or from tenant defaults generally.

We are dependent on tenants for our revenues, including certain significant tenants. Moreover, certain of our properties are occupied by a single tenant, and the income produced by these properties depends on the financial stability of that tenant. The bankruptcy or insolvency of the tenants at our properties, or tenant defaults generally, may adversely affect the income produced by our properties. The tenants, particularly those that are highly leveraged, could file for bankruptcy protection or become insolvent in the future. Under bankruptcy law, a tenant cannot be evicted solely because of its bankruptcy. On the other hand, a bankrupt tenant may reject and terminate its lease with us. In such case, our claim against the bankrupt tenant for unpaid and future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and, even so, our claim for unpaid rent would likely not be paid in full. This shortfall could adversely affect our cash flows and results of operations and could cause us to reduce the amount of distributions to stockholders.

A default by a tenant on its lease payments could force us to find an alternative source of revenues to pay any mortgage loan or operating expenses on the property. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs, including litigation and related expenses, in protecting our investment andre-leasing our property.

Declining real estate valuations and impairment charges could adversely affect our earnings and financial condition.

We review the carrying value of our properties when circumstances, such as adverse market conditions, indicate potential impairment may exist. We base our review on an estimate of the future cash flows (excluding interest charges) expected to result from the real estate investment’s use and eventual disposition. We consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If our evaluation indicates that we may be unable to recover the carrying value of a real estate investment, an impairment loss will be recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses would have a direct impact on our net income
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because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. A worsening real estate market may cause us to reevaluate the assumptions used in our impairment analysis. Impairment charges could adversely affect our financial condition, results of operations, cash available for distribution, including cash available for us to pay distributions to our stockholders and per share trading price of our common stock.

We utilize local third-party managers forday-to-day property management for substantially all of our properties.

In general, we prefer to utilize local third-party managers forday-to-day property management, although we may directly manage other properties in the future. To the extent we utilize third-party managers, our cash flows from our industrial properties may be adversely affected if our managers fail to provide quality services. In addition, our managers or their affiliates may manage, and in some cases may own, invest in or provide credit

Index to Financial Statements

support or operating guarantees to industrial properties that compete with our industrial properties, which may result in conflicts of interest and decisions regarding the operation of our industrial properties that are not in our best interests.

Our real estate redevelopment, renovation or expansion strategies may not be successful.

In connection with our business strategy, we may pursue redevelopment opportunities or construct expansions or improvements of industrial properties that we own. We will be subject to risks associated with our redevelopment, renovation and expansion activities that could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock. Such risks include the expenditure of money and time on projects that do not perform as expected; higher than estimated construction or operating costs, including labor and material costs; failure to obtain, or delays in obtaining, any necessary permits and authorizations; permits and authorizations that are subject to stringent conditions; the inability to complete construction on the timeframe we expect; occupancy and rental rates that may not meet expectations; and the inability to obtain financing on favorable terms or at all to finance redevelopment, renovation and expansion projects.

We may be required to fund future tenant improvements, and we may not have funding for those improvements.

When a tenant at one of our properties does not renew its lease or otherwise vacates its space in one of our buildings in the future, it is likely that, in order to attract one or more new tenants, we will be required to expend funds to construct new tenant improvements in the vacated space. We may also be required to fund tenant improvements to retain tenants. Although we intend to manage our cash position or financing availability to pay for any improvements required forre-leasing, we cannot assure our stockholders that we will have adequate sources of funding available to us for such purposes in the future.

Debt service obligations could adversely affect our overall operating results, may require us to sell industrial properties and could adversely affect our ability to make distributions to our stockholders and the market price of our shares of common stock.

Our business strategy contemplates the use of bothnon-recourse secured debt and unsecured debt to finance long-term growth. As of December 31, 2017,2019, we had total debt, net of deferred financing costs, of approximately $461.7$491.6 million, which consisted of revolving credit facility borrowings, term loan borrowings, senior unsecured note borrowings and mortgage loans payable. While 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 shares of preferred stock to less than 35% of our total enterprise value, our governing documents contain no limitations on the amount of debt that we may incur, and our board of directors may change our financing policy at any time without stockholder approval. Over the long-term, we also intend to maintain a fixed charge coverage ratio in excess of 2.0x and adebt-to-adjusted EBITDA ratio below 6.0x and limit the principal amount of our outstanding floating rate debt to less than 20% of our total consolidated indebtedness. Our board of directors may modify or eliminate these limitations at any time without the approval of our stockholders. As a result, we may be able to incur substantial additional debt, including secured debt, in the future. Our existing debt, and the incurrence of additional debt, could subject us to many risks, including the risks that:

•our cash flows from operations will be insufficient to make required payments of principal and interest;

•our debt may increase our vulnerability to adverse economic and industry conditions;

•we may be required to dedicate a substantial portion of our cash flows from operations to payments on our debt, thereby reducing cash available for distribution to our stockholders, funds available for operations and capital expenditures, future business opportunities or other purposes;

•the terms of any refinancing will not be as favorable as the terms of the debt being refinanced; and

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•the use of leverage could adversely affect our ability to make distributions to our stockholders and the market price of our shares of common stock.

Index to Financial Statements

If we do not have sufficient funds to repay existing or future debt, including debt under our credit facility and senior unsecured notes, it may be necessary to refinance the debt through additional debt or additional equity financings. If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates on refinancings, increases in interest expense would adversely affect our cash flows, and, consequently, cash available for distribution to our stockholders. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of industrial properties on disadvantageous terms, potentially resulting in losses. We may place mortgages on our properties that we own to secure a revolving credit facility or other debt. To the extent we cannot meet any future debt service obligations, we will risk losing some or all of our industrial properties that may be pledged to secure our obligations to foreclosure. Also, covenants applicable to any existing or future debt could impair our planned investment strategy and, if violated, result in a default.

Higher interest rates could increase debt service requirements on any floating rate debt that we incur and could reduce the amounts available for distribution to our stockholders, as well as reduce funds available for our operations, future business opportunities, or other purposes. In addition, an increase in interest rates could decrease the amount third parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions. Adverse economic conditions could cause the terms on which we borrow to be unfavorable. We could be required to liquidate one or more of our industrial properties in order to meet our debt service obligations at times which may not permit us to receive an attractive return on our investments.

Our $200.0$250.0 million revolving credit facility, our $150.0$100.0 million of term loans,loan, our $250.0$350.0 million of senior unsecured notes and certain of our existing mortgage loans payable contain, and we expect that our future indebtedness will contain, covenants that could limit our operations and our ability to make distributions to our stockholders.

We have a credit facility, which consists of a $200.0 million revolving credit facility that matures in August 2020, a $50.0 million term loan that matures in August 2021 and a $100.0 million term loan that matures in January 2022 and a revolving credit facility with $250.0 million in borrowing capacity that matures in October 2022. We also have $250.0$350.0 million of senior unsecured notes outstanding. We have agreed to guarantee the obligations of the borrower (a wholly-owned subsidiary) under our revolving credit facility, our term loansloan and our senior unsecured notes. Our revolving credit facility, our term loans,loan, our senior unsecured notes and certain of our existing mortgage loans payable contain, and we expect that our future indebtedness will contain, financial and operating covenants, such as fixed charge coverage and debt ratios and other limitations that will limit or restrict our ability to make distributions or other payments to our stockholders and may restrict our investment activities. For example, our credit facility restricts distributions if we are in default and otherwise limits our fiscal year distributions to 95% of our funds from operations.default. The covenants in our debt agreements may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our stockholders or obtain necessary funds. Given the restrictions in our debt covenants on these and other activities, we may be limited in our operating and financial flexibility and in our ability to respond to changes in our business or competitive activities in the future.

Failure to meet our financial covenants could result from, among other things, changes in our results of operations, the incurrence of debt or changes in general economic conditions. In addition, the failure of at least one of our chief executive officer and our president or any successors approved by the administrative agent to continue to be active in ourday-to-day management constitutes an event of default under our credit facility. We have 120 days under our credit facility to hire a successor executive reasonably satisfactory to the administrative agent in the event that both our chief executive officer and our president or any successors cease to be active in our management. If we violate covenants or if there is an event of default under our credit facility, our senior unsecured notes, our existing mortgage loans payable or in our future agreements, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all which may have a material adverse effect on our cash flows, financial condition and results of operations.

Index to Financial Statements

In addition, the note purchase agreementagreements with respect to our existing senior unsecured notes contains,contain, and any unsecured debt agreements we enter into in the future may contain, specific cross-default provisions with respect to specified other indebtedness, giving the unsecured lenders the right to declare a default if we are in default under other loans in some circumstances. Defaults under our debt agreements could materially and adversely affect our financial condition and results of operations.

We may acquire outstanding debt or provide a loan, in each case secured by an industrial property, which maywill expose us to risks.

We may acquire outstanding debt secured by an industrial property from lenders and investors or provide a loan secured by industrial property if we believe we can acquire ownership of the underlying property in the near-term through foreclosure,deed-in-lieu of foreclosure or other means. However, ifFor example, on May 7, 2018, we made a senior secured loan of $55.0 million with a two-year term
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that bears interest at a fixed annual interest rate of 8.0% and matures in May 2020, which is secured by a portfolio of seven improved land parcels. During the year ended December 31, 2019, we acquired two properties that were securing the senior secured loan for a previously agreed upon purchase price, which resulted in an equivalent reduction of the amount outstanding under the senior secured loan. The balance of the loan at December 31, 2019 was $15.9 million. If we do acquire such debt or provide such a loan, borrowers may seek to assert various defenses to our foreclosure or other actions and we may not be successful in acquiring the underlying property on a timely basis, or at all, in which event we could incur significant costs and experience significant delays in acquiring such properties, all of which could adversely affect our financial performance and reduce our expected returns from such investments. In addition, we may not earn a current return on such investments particularly if the loan that we acquire or provide is in, or goes into, default.

If we providedebtor-in-possession financing or provide a loan, a default by the borrower could adversely affect our cash flows.

We may on a limited basis providedebtor-in-possession financing to a property owner that has filed for bankruptcy, or make a loan secured by real estate that we might otherwise purchase directly. We expect that any such loans would be secured by one or more properties that we intend to acquire and that we would have the option to acquire such property in lieu of the repayment of such loan. For example, on May 7, 2018, we made a senior secured loan of $55.0 million with a two-year term that bears interest at a fixed annual interest rate of 8.0% and matures in May 2020, which is secured by a portfolio of seven improved land parcels. During the year ended December 31, 2019, we acquired two properties that were securing the senior secured loan for a previously agreed upon purchase price, which resulted in an equivalent reduction of the amount outstanding under the senior secured loan. Any default by the borrower under any such loan, including such senior secured loan, could negatively impact our cash flows and our ability to make cash distributions to our stockholders and result in litigation and related expenses. Although we would expect to acquire the secured property upon a borrower’s default, there is no assurance that we will successfully foreclose on a property, and any such foreclosure could result in significant expenses.

Adverse changes in our credit rating could negatively affect our financing activity.

Fitch Ratings assigned us an issuer rating ofBBB- 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. Our credit rating can affect the amount of capital we can access, as well as the terms and pricing of any debt we may incur. There can be no assurance that we will be able to maintain our current credit rating, and in the event our credit rating is downgraded, we would likely incur higher borrowing costs and may encounter difficulty in obtaining additional financing. Also, a downgrade in our credit rating may trigger additional payments or other negative consequences under our existing andfuturecreditand future credit facilities and debt instruments. For example, if our credit rating is downgraded to below investment grade levels, we may not be able to obtain or maintain extensions on certain of our existing debt. Adverse changes in our credit rating could negatively impact our refinancing activities, our ability to manage our debt maturities, our future growth, our financial condition, the market price of our stock and our acquisition activities.

Failure to hedge effectively against interest rate changes may adversely affect results of operations.

We may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as cap contracts and swap agreements. For example, we have executed interest rate caps to hedge the variable cash flows associated with our $150.0$100.0 million of variable-rate term loans.loan. These agreements have costs and involve the risks that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such agreements are not legally enforceable. Hedging may reduce overall returns on our investments. Failure to hedge effectively against interest rate changes may materially adversely affect our results of operations.

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We may be adversely affected by the potential discontinuation of LIBOR.

In July 2017, the Financial Conduct Authority in the United Kingdom, which regulates LIBOR, announced that it intends to Financial Statements
stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is expected that a transition away from the widespread use of LIBOR to alternative interest rates will occur over the course of the next few years. As of December 31, 2019, we had $100.0 million of debt that was indexed to LIBOR, including our credit facility.


In the event that LIBOR is discontinued, the interest rate for our debt that is indexed to LIBOR will be based on a replacement rate or an alternate base rate as specified in the applicable documentation governing such debt or as otherwise agreed upon. Such an event would not affect our ability to borrow or maintain already outstanding borrowings, but the replacement rate or alternate base rate could be higher or more volatile than LIBOR prior to its discontinuance. The full impact of the expected transition away from LIBOR and the potential discontinuation of LIBOR after 2021 is unclear, but these changes could adversely affect our cash flow, financial condition and results of operations.

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Our property taxes could increase due to property tax rate changes or reassessment, which would impact our cash flows.

Even if we qualify as a REIT for federal income tax purposes, we will be required to pay some state and local taxes on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities. For example, all of our properties located in California may be reassessed as a result of various factors including, without limitation, changes in California laws that contain certain limitations on annual increases of assessed value of real property, commonly referred to as “Proposition 13 Protections.” A measure proposing to remove certain Proposition 13 Protections for commercial real estate owners qualified as a November 2020 California ballot measure. Therefore, the amount of property taxes we pay in the future may increase substantially. If the property taxes we pay increase, our cash flows will be impacted, and our ability to pay expected distributions to our stockholders could be adversely affected.

Actions of our joint venture partners could negatively impact our performance.

While we have no current intention to do so, we may acquire and/or redevelop properties through joint ventures, limited liability companies and partnerships with other persons or entities when warranted by the circumstances. Such partners may share certain approval rights over major decisions. Such investments may involve risks not otherwise present with other methods of investment in real estate. We generally will seek to maintain sufficient control of our partnerships, limited liability companies and joint ventures to permit us to achieve our business objectives; however, we may not be able to do so, and the occurrence of one or more of the events described above could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock.

If we invest in a limited partnership as a general partner, we could be responsible for all liabilities of such partnership.

In some joint ventures or other investments we may make, if the entity in which we invest is a limited partnership, we may acquire all or a portion of our interest in such partnership as a general partner. As a general partner, we could be liable for all the liabilities of such partnership. Additionally, we may be required to take our interests in other investments as anon-managing general partner. Consequently, we would be potentially liable for all such liabilities without having the same rights of management or control over the operation of the partnership as the managing general partner or partners may have. Therefore, we may be held responsible for all of the liabilities of an entity in which we do not have full management rights or control, and our liability may far exceed the amount or value of the investment we initially made or then had in the partnership.

The conflict of interest policies we have adopted may not adequately address all of the conflicts of interest that may arise with respect to our activities.

In order to avoid any actual or perceived conflicts of interest with our directors, officers or employees, we have adopted certain policies to specifically address some of the potential conflicts relating to our activities. In addition, our board of directors is subject to certain provisions of Maryland law, which are also designed to eliminate or minimize conflicts. Although under these policies the approval of a majority of our disinterested directors is required to approve any transaction, agreement or relationship in which any of our directors, officers or employees has an interest, there is no assurance that these policies will be adequate to address all of the conflicts that may arise or will address such conflicts in a manner that is favorable to us.

Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal controls over financial reporting.

The design and effectiveness of our disclosure controls and procedures and internal controls over financial reporting may not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, there can be no guarantee that our internal controls over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal controls over financial reporting which may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or otherwise materially adversely affect our business, reputation, results of operations, financial condition or liquidity.

Index to Financial Statements

Volatility in the capital and credit markets could materially and adversely impact us.

The capital and credit markets have experienced extreme volatility and disruption in the past,from time to time, which has at times made it more difficult to borrow money or raise equity capital. Market volatility and disruption could hinder our ability to obtain new debt financing or refinance our maturing debt on favorable terms or at all. In addition, our future access to the equity markets could be limited. Any such financing or refinancing issues could materially and adversely affect us. Market turmoil and
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tightening of credit, which have occurred in the past, can lead to an increased lack of consumer confidence and widespread reduction of business activity generally, which also could materially and adversely impact us, including our ability to acquire and dispose of assets on favorable terms or at all. Volatility in capital and credit markets may also have a material adverse effect on the market price of our common stock.

We may not acquire the industrial properties that we have entered into agreements or non-binding letters of intent to acquire.

We have entered into agreements and non-binding letters of intent with third-party sellers to acquire three properties as more fully described under the heading “Contractual Obligations” in this Annual Report on Form10-K. There is no assurance that we will acquire the properties under contract and non-binding letters of intent because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions.conditions, and in the case of properties under non-binding letters of intent, our entry into purchase and sale agreements with respect to the properties. There is no assurance that such proposed acquisitions, if completed, will be completed on the timeframe or terms we expect. If we do not complete the acquisition of the properties under contract or non-binding letters of intent, we will have incurred expenses without our stockholders realizing any benefit from the acquisition of such properties.

We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems.

Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations and, in some cases, may be critical to the operations of certain of our tenants. We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments toe-mails, people with access or who gain access to our systems and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation of our business and our ability to performday-to-day operations and, in some cases, may be critical to the operations of certain of our tenants. Although we make efforts to maintain the security and integrity of our IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, including but not limited to password protection, ongoing training modules throughout the year, frequent backups and a redundant data system, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures.

A security breach or other significant disruption involving our IT networks and related systems could, significantly among other things:
•disrupt the proper functioning of our networks and systems, and significantly disrupttherefore our operations which could ultimately have a material adverse effect on our financial condition, resultsand/or those of operations, cash flows and ability to pay distributions on, and the market pricecertain of our common stock.

tenants;

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•result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines;
•result in our inability to Financial Statements
properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;

•require significant management attention and resources to remedy any damages that result;

•compromise the confidential information of our employees and tenants;
•result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
•subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or
•damage our reputation among our tenants, investors and associates.
Risks Related to the Real Estate Industry

Our performance and value are subject to general economic conditions and risks associated with our real estate assets.

The investment returns available from investments in real estate depend on the amount of income earned and capital appreciation generated by the properties, as well as the expenses incurred in connection with the properties. If our properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then our ability to pay distributions to our stockholders could be adversely affected. In addition, there are significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes and maintenance costs) that generally do not decline
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when circumstances reduce the income from the property. Income from and the value of our properties may be adversely affected by:

•downturns in national, regional and local economic conditions (particularly increases in unemployment);

•the attractiveness of our properties to potential tenants and competition from other industrial properties;

•changes in supply of or demand for similar or competing properties in an area;

•bankruptcies, financial difficulties or lease defaults by the tenants of our properties;

•adverse capital and credit market conditions, which may restrict our operating activities;

•changes in interest rates, availability and terms of debt financing;

•changes in operating costs and expenses and our ability to control rents;

•changes in, or increased costs of compliance with, governmental rules, regulations and fiscal policies, including changes in tax, real estate, environmental and zoning laws, and our potential liability thereunder;

•our ability to provide adequate maintenance and insurance;

•changes in the cost or availability of insurance, including coverage for mold or asbestos;

•unanticipated changes in costs associated with known adverse environmental conditions or retained liabilities for such conditions;

•periods of high or rising interest rates;

•tenant turnover;

•re-leasing that may require concessions or reduced rental rates under the new leases due to reduced demand;

•general overbuilding or excess supply in the market area;

•disruptions in the global supply chain caused by political, regulatory or other factors including terrorism;
•disruptions to political, governmental or regulatory systems, including shutdowns of the government and its agencies; and

•the effects of deflation, including credit market dislocation, weakened consumer demand and a decline in general price levels.

In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or public perception that any of these events may occur, would result in a general decrease in rents or an increased occurrence of defaults under existing leases, which would materially adversely affect our financial condition and results of operations. Future terrorist attacks may result in declining economic activity, which could reduce the demand for, and the value of, our properties. To the extent that future attacks impact the tenants of our properties, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases. For these and other reasons, we cannot assure our stockholders that we will be profitable or that we will realize growth in the value of our real estate properties.

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Investments in real estate properties are subject to Financial Statements
risks that could adversely affect our business.

Investments in real estate properties are subject to varying degrees of risk. While we seek to minimize these risks through geographic diversification of our portfolio, market research and our asset management capabilities, these risks cannot be eliminated. Factors that may affect real estate values and cash flows include:

•local conditions, such as oversupply or a reduction in demand;
•technological changes, such as reconfiguration of supply chains, autonomous vehicles, robotics, 3D printing or other technologies;
•the attractiveness of our properties to potential tenants and competition from other available properties;
•increasing costs of maintaining, insuring, renovating and making improvements to our properties;
•our ability to renovate and reposition our properties due to changes in the business and logistical needs of our tenants;
•our ability to control rents and variable operating costs; and
•government regulations and the associated liability under, and changes in, environmental, zoning, usage, tax tariffs and other laws.
Actions by our competitors may decrease or prevent increases in the occupancy and rental rates of our properties.

We compete with other developers, owners and operators of real estate, some of which own properties similar to our properties in the same markets and submarkets in which the properties we own are located. If our competitors offer space at rental rates below current market rates or below the rental rates we will charge the tenants of our properties, we may lose existing or potential tenants, and we may be pressured to reduce our rental rates or offer tenant concessions or favorable lease terms in order to retain tenants when such tenants’ leases expire or attract new tenants. In addition, if our competitors sell assets similar to assets we intend to divest in the same markets and/or at valuations below our valuations for comparable assets, we may be unable to divest our assets at all or at favorable pricing or on favorable terms. As a result of these actions by our competitors, our financial condition, cash flows, cash available for distribution, trading price of our common stock and ability to satisfy our debt service obligations could be materially adversely affected.

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Real estate investments are not as liquid as other types of assets, which may reduce economic returns to investors.

Real estate investments are not as liquid as other types of investments, and this lack of liquidity may limit our ability to react promptly to changes in economic, financial, investment or other conditions. In addition, significant expenditures associated with real estate investments, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investments. In addition, we intend to comply with the safe harbor rules relating to the number of properties that can be disposed of in a year, the tax bases and the costs of improvements made to these properties, and meet other tests which enable a REIT to avoid punitive taxation on the sale of assets. Thus, our ability at any time to sell assets or contribute assets to property funds or other entities in which we have an ownership interest may be restricted. This lack of liquidity may limit our ability to vary our portfolio promptly in response to changes in economic, financial, investment or other conditions and, as a result, could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the market price of, our common stock.

Uninsured or underinsured losses relating to real property may adversely affect our returns.

We will attempt to ensure that all of our properties are adequately insured to cover casualty losses. However, there are certain losses, including losses from floods, hurricanes, fires, earthquakes and other natural disasters, acts of war, acts of terrorism or riots, that are not generally insured against or that are not generally fully insured against because it is not deemed economically feasible or prudent to do so. In addition, changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss, and we could experience a significant loss of capital invested and potential revenues in these properties and could potentially remain obligated under any recourse debt associated with the property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a property after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property. Any such losses could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock. In addition, we may have no source of funding to repair or reconstruct the damaged property, and we cannot assure that any such sources of funding will be available to us for such purposes in the future.

We own properties in Los Angeles, the San Francisco Bay Area and Seattle, which are located in areas that are known to be subject to earthquake activity. Although we carry replacement-cost earthquake insurance on all of our properties located in areas historically subject to seismic activity, subject to coverage limitations and deductibles that we believe are commercially reasonable, we may not be able to obtain coverage to cover all

Index to Financial Statements

losses with respect to such properties on economically favorable terms, which could expose us to uninsured casualty losses. We intend to evaluate our earthquake insurance coverage annually in light of current industry practice.

We own properties located in areas which are known to be subject to hurricane and/or flood risk. Although we carry replacement-cost hurricane and/or flood hazard insurance on all of our properties located in areas historically subject to such activity, subject to coverage limitations and deductibles that we believe are commercially reasonable, we may not be able to obtain coverage to cover all losses with respect to such properties on economically favorable terms, which could expose us to uninsured casualty losses. We intend to evaluate our insurance coverage annually in light of current industry practice.

If any of our insurance carriers becomes insolvent, we could be adversely affected.

We carry several different lines of insurance with several large insurance carriers. If any one of these large insurance carriers were to become insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at significant risk for collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms. Replacing insurance coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency would likely adversely affect us.

Contingent or unknown liabilities could adversely affect our financial condition.

We may own or acquire properties that are subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. Additionally, many sellers of real estate are single-purpose entities without any other significant assets. As a result, if a liability were asserted against us based upon ownership of any of these entities or properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flows. Unknown liabilities with respect to entities or properties acquired might include:

•liabilities for investigation, clean-up or remediation of adverse environmental conditions;

•accrued but unpaid liabilities incurred in the ordinary course of business;

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•tax liabilities; and

•claims for indemnification by the general partners, officers and directors and others indemnified by the former owners of the properties.

We may from time to time be subject to litigation that may negatively impact our cash flow, financial condition, results of operations and market price of our common stock.

We may from time to time be a defendant in lawsuits and regulatory proceedings relating to our business. Such litigation and proceedings may result in defense costs, settlements, fines or judgments against us, some of which may not be covered by insurance. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such litigation or proceedings. An unfavorable outcome could negatively impact our cash flow, financial condition, results of operations and trading price of our common stock.

Additionally, whether or not any dispute actually proceeds to litigation, we may be required to devote significant management time and attention to its successful resolution (through litigation, settlement or otherwise), which would detract from our management’s ability to focus on our business. Any such resolution could involve the payment of damages or expenses by us, which may be significant, or involve our agreement with terms that restrict the operation of our business. Certain litigation or the resolution of certain litigation may also affect the availability or cost of some of our insurance coverage and could expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract directors, officers and other key employees.
Environmentally hazardous conditions may adversely affect our operating results.

Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of investigating, removing or remediating hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Even if more than one person may have been responsible for the contamination, each person covered by applicable environmental laws may be held responsible for all of the

Index to Financial Statements

clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, natural resource or property damage or other costs, including investigation andclean-up costs, resulting from the environmental contamination. The presence of hazardous or toxic substances on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or borrow using the property as collateral. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated. A property owner who violates environmental laws may be subject to sanctions which may be enforced by governmental agencies or, in certain circumstances, private parties. In connection with the acquisition and ownership of our properties, we may be exposed to such costs. The cost of defending against environmental claims, of compliance with environmental regulatory requirements or of remediating any contaminated property could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to our stockholders.

Environmental laws in the U.S. also require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. Some of our properties may contain asbestos-containing building materials.

We invest in properties historically used for industrial, manufacturing and commercial purposes. Some of these properties contain, or may have contained, underground storage tanks for the storage of petroleum products and other hazardous or toxic substances. All of these operations create a potential for the release of petroleum products or other hazardous or toxic substances. Some of our properties may be adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances. In addition, certain of our properties may be on or are adjacent to or near other properties upon which others, including former owners or tenants of such properties, have engaged, or may in the future engage, in activities that may release petroleum products or other hazardous or toxic substances. As needed, we may obtain environmental insurance policies on commercially reasonable terms that provide coverage for potential environmental liabilities, subject to the policy’s coverage conditions and limitations. From time to time, we may acquire properties, or interests in properties, with known adverse environmental conditions where we believe that the environmental liabilities associated with these conditions are quantifiable and that the acquisition will yield a superior risk-adjusted return. In such an instance, we underwrite the costs of environmental investigation,clean-up and monitoring into the
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cost. Further, in connection with property dispositions, we may agree to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental conditions on the properties.

We generally obtain Phase I environmental site assessments on each property prior to acquiring it and we generally anticipate that the properties that we may acquire in the future may be subject to a Phase I or similar environmental assessment by independent environmental consultants at the time of acquisition. Phase I assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. Phase I assessments generally include a historical review, a public records review, an investigation of the surveyed site and surrounding properties, and preparation and issuance of a written report, but do not include soil sampling or subsurface investigations and typically do not include an asbestos survey. Even if none of our environmental assessments of our properties reveal an environmental liability that we believe would have a material adverse effect on our business, financial condition or results of operations taken as a whole, we cannot give any assurance that such conditions do not exist or may not arise in the future. Material environmental conditions, liabilities or compliance concerns may go undetected by the environmental assessment or arise after the environmental assessment has been completed. Moreover, there can be no assurance that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the environmental condition of our properties will not be affected by tenants, by the condition of land or operations in the vicinity of such properties (such as releases from underground storage tanks), or by third parties unrelated to us.

Index to Financial Statements

Costs of complying with governmental laws and regulations with respect to our properties may adversely affect our income and the cash available for any distributions.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Tenants’ ability to operate and to generate income to pay their lease obligations may be affected by permitting and compliance obligations arising under such laws and regulations. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. Leasing our properties to tenants that engage in industrial, manufacturing, and commercial activities will cause us to be subject to the risk of liabilities under environmental laws and regulations. In addition, the presence of hazardous or toxic substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.

Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, the operations of the tenants of our properties, the existing condition of the land, operations in the vicinity of such properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect such properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and which may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines or damages we must pay will reduce our ability to make distributions and may reduce the value of our common stock. In addition, changes in these laws and governmental regulations, or their interpretation by agencies or the courts, could occur.

Furthermore, while leases with our tenants generally include provisions to obligate the tenants to comply with all laws and operate within a defined use, there is no guaranty that the tenants will comply with the terms of their leases. Moreover, our tenants may disregard the use restrictions contained in their leases and conduct operations not contemplated by the lease, such as prohibited uses related to cannabis or highly hazardous uses, for example, despite our efforts to prohibit certain uses. We may incur costs to bring a property into legal compliance even though the tenant may have been contractually required to comply and pay for the cost of compliance.
The potential impacts of climate-related initiatives at the U.S. federal and state levels remain uncertain at this time but could result in increased operating costs.

Government authorities and various interest groups are promoting laws and regulations that could limit greenhouse gas, or GHG, emissions due to concerns over contributions to climate change. The United States Environmental Protection Agency,Laws and regulations targeting climate change or EPA, has moved to regulate GHG emissions, from large stationary sources, including electricity producers, and mobile sources, through fuel efficiency and other requirements, using its existing authority under the Clean Air Act. Moreover, certain state and regional programs are being implemented to require reductions in GHG emissions. Anyany additional taxation or regulation of energy use including as a result of (i) the regulations that EPA has proposed or may propose in the future, (ii) state programs and regulations, or (iii) renewed GHG legislative efforts by future Congresses, could result in increased operating costs that we may not be able to effectively pass on to our tenants. In addition, any increased regulation of GHG emissionssuch laws and regulations could impose substantial costs on our tenants. These costs include, for example, an increase in the cost of the fuel and other energy purchased by our tenants and capital costs associated with updating or replacing their trucks earlier than planned. Any such increased costs could impact the financial condition of our tenants and their ability to meet their lease obligations and to lease orre-lease our properties.

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We are exposed to the potential impacts of future climate change and climate-change related risks.

risks, which may result in unanticipated losses that could affect our business and financial condition.

We may be exposed to potential physical risks from possible future changes in climate. Our properties may be exposed to rare catastrophic weather events, such as severe storms or floods. If the frequency of extreme weather events increases, due to climate change, our exposure to these events could increase. Some of our properties may be subject to risks from rising sea levels iflevels. In addition, many state and local governments are adopting or considering adopting regulations requiring that property owners and developers include in their development or redevelopment plans resiliency measures to address climate-change related risks. If such rising wereregulations apply to occur.

Indexany of our properties, we may be required to Financial Statements
incur substantial costs to address such regulations.

Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs.

Under the Americans with Disabilities Act, the Fair Housing Amendment Act of 1988, and any other similar regulations, places of public accommodation must meet certain requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines or the award of damages to private litigants. If we are required to make unanticipated expenditures to comply with the Americans with Disabilities Act andabove acts, statutes, and/or other similar regulations, including removing access barriers, then our cash flows and the amounts available for distributions to our stockholders may be adversely affected. If we are required to make substantial modifications to our properties, whether to comply with the Americans with Disabilities Act andabove acts, statutes, and/or other similar regulations, or other changes in governmental rules and regulations, our financial condition, cash flows, results of operations, the market price of our shares of common stock and our ability to make distributions to our stockholders could be adversely affected.

Some of our properties may be subject to California energy efficiency standards.
Under California energy efficiency standards, enacted and periodically amended, including, without limitation, Title 24 or The Energy Efficiency Standards for Residential and Nonresidential Buildings, building owners may incur increased costs to renovate properties in order to meet changing energy efficiency standards and make energy usage disclosures. If we are required to make unanticipated expenditures or substantial modifications to our properties, our financial condition, cash flows, results of operations, the market price of our shares of common stock and our ability to make distributions to our stockholders could be adversely affected. We may incur additional costs collecting and reporting energy usage data from our tenants and properties in order to comply with such energy efficiency standards.

We may be unable to sell a property if or when we decide to do so, including as a result of uncertain market conditions, which could adversely affect the return on an investment in our common stock.

We expect to hold the various real properties in which we invest until such time as we decide that a sale or other disposition is appropriate given our investment objectives. Our ability to dispose of properties on advantageous terms or at all depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. We cannot predict the various market conditions affecting real estate investments which will exist at any particular time in the future. Due to the uncertainty of market conditions which may affect the future disposition of our properties, we cannot assure our stockholders that we will be able to sell such properties at a profit or at all in the future. Accordingly, the extent to which our stockholders will receive cash distributions and realize potential appreciation on our real estate investments will be dependent upon fluctuating market conditions.

Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure our stockholders that we will have funds available to correct such defects or to make such improvements. In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would restrict our ability to sell a property.

If we sell properties and provide financing to purchasers, defaults by the purchasers would adversely affect our cash flows.

If we decide to sell any of our properties, we presently intend to sell them for cash. However, if we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash distributions to stockholders and result in litigation and related expenses. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, refinanced or otherwise disposed of.

Risks Related to Our Organizational Structure

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Our board of directors may change significant corporate policies without stockholder approval.

Our investment, financing, borrowing and distribution policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, are determined by our board of directors. These policies may be amended or revised at any time and from time to time at the discretion of the board of directors without a vote of our stockholders. In addition, the board of directors may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal and regulatory requirements, including the listing standards of the NYSE.New York Stock Exchange. A change in these policies could have an adverse effect on our financial condition, results of operations, cash flows, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay distributions to our stockholders.

Index to Financial Statements

We could increase the number of authorized shares of stock and issue stock without stockholder approval.

Subject to applicable legal and regulatory requirements, our charter authorizes our board of directors, without stockholder approval, to increase the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series, to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock and to set the preferences, rights and other terms of such classified or unclassified shares. Our board of directors could establish a series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Certain provisions of Maryland law could inhibit changes in control.

Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting or deterring a third-party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

•“Business Combination”provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate or associate of ours who, at any time within thetwo-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting shares) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose special appraisal rights and special stockholder voting requirements on these combinations; and

•“Control Share”provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at leasttwo-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

•“Business Combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting shares) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose special appraisal rights and special stockholder voting requirements on these combinations; and
•“Control Share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
We have opted out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL by resolution of our board of directors, and in the case of the control share provisions of the MGCL pursuant to a provision in our bylaws. However, in the future, only upon the approval of our stockholders, our board of directors may by resolution elect to opt in to the business combination provisions of the MGCL and we may, only upon the approval of our stockholders, by amendment to our bylaws, opt in to the control share provisions of the MGCL. Our board of directors has also adopted a resolution prohibiting us from electing to be subject to the provisions of Title 3, Subtitle 8 of the MGCL that would permit our board of directors to classify the board without stockholder approval. Such provisions of Title 3, Subtitle 8 of the MGCL could have an anti-takeover effect. We may only elect to be subject to the classified board provisions of Title 3, Subtitle 8 after first obtaining the approval of our stockholders.

In addition, the provisions of our charter on removal of directors and the advance notice provisions of our bylaws could delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for holders of our common stock or otherwise be in their best interest. Likewise, if our board of directors, with stockholder approval, as applicable, were to opt in to the business combination provisions of the MGCL or the provisions of Title 3, Subtitle 8 of the MGCL, or if the provision in our bylaws opting out of the control share acquisition provisions of the MGCL were rescinded by our board of directors and our stockholders, these provisions of the MGCL could have similar anti-takeover effects.

Index to Financial Statements

Our rights and the rights of our stockholders to take action against our directors and officers are limited.

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Maryland law provides that a director or officer has no liability in that capacity if he or she satisfies his or her duties to us and our stockholders. Our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:

•actual receipt of an improper benefit or profit in money, property or services; or

•a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.

In addition, our charter will authorize us to obligate our company, and our bylaws will require us, to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist. Accordingly, in the event that actions taken in good faith by any of our directors or officers impede the performance of our company, your ability to recover damages from such director or officer will be limited. In addition, we may be obligated to advance the defense costs incurred by our directors and executive officers, and may, in the discretion of our board of directors, advance the defense costs incurred by our employees and other agents in connection with legal proceedings.

Risks Related to Our Status as a REIT

Failure to qualify as a REIT would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to stockholders.

We believe that our organization and method of operation has enabled and will continue to enable us to meet the requirements for qualification and taxation as a REIT. However, we cannot assure you that we will qualify as such. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Code as to which there are only limited judicial and administrative interpretations and involves the determination of facts and circumstances not entirely within our control. Future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax consequences of such qualification.

If we fail to qualify as a REIT in any taxable year, and are unable to obtain relief under certain statutory provisions, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because:

•we would not be allowed a deduction for distributionsdividends paid to stockholders in computing our taxable income and would be subject to federal and state income tax at regular corporate rates; and

unless we are entitled to relief under statutory provisions, •we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

In addition, if we fail to qualify as a REIT, we willwould no longer be required to pay distributions. As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it could adversely affect the value of our common stock.

Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows.

Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. Any of these taxes would decrease cash available for distributions to stockholders.

Index to Financial Statements

REIT distribution requirements could adversely affect our liquidity and may force us to borrow funds or sell assets during unfavorable market conditions.

In order to maintain our REIT status and to meet the REIT distribution requirements, we may need to borrow funds on a short-term basis or sell assets, even if the then-prevailing market conditions are not favorable for these borrowings or sales. To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our net taxable income each year, excluding capital gains. In addition, we will be subject to corporate income tax to the extent we distribute less than 100% of our net taxable income including any net capital gain. We intend to make distributions to our stockholders to comply with the requirements of the Code for REITs and to minimize or eliminate our corporate income tax obligation to the extent consistent with our business objectives. Our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes, or the effect ofnon-deductible capital expenditures, the creation of reserves or required debt service or amortization payments. The insufficiency of our cash flows to cover our distribution requirements could have an adverse impact on our ability to raise short-
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and long-term debt or sell equity securities in order to fund distributions required to maintain our REIT status. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.

Dividends payable by REITs generally do not qualify for reduced tax rates.

Currently, the maximum tax rate for qualified dividends payable to individual U.S. stockholders is 20%. Dividends payable by REITs, however, are generally not eligible for such reduced rates. However, for taxable years beginning after December 31, 2017 and before January 1, 2026, new legislation provides for a deduction of up to 20% (subject to certain limitations) on most ordinary REIT dividends and certain trade or business income ofnon-corporate taxpayers. Additionally, to the extent such dividends are attributable to certain dividends that we receive from a taxable REIT subsidiary (“TRS”), such dividends generally will be eligible for the reduced rates that apply to qualified dividend income. While we currently do not own any interest in a TRS, we may own any such interest in the future. The more favorable rates applicable to regular corporate dividends could cause investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks ofnon-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock.

We may in the future choose to pay dividends in our stock instead of cash, in which case stockholders may be required to pay income taxes in excess of the cash dividends they receive.

We may, in the future, distribute taxable dividends that are payable in cash and common stock at the election of each stockholder or distribute other forms of taxable stock dividends. Taxable stockholders receiving such dividends or other forms of taxable stock dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certainnon-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities or to liquidate otherwise attractive investments.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to

Index to Financial Statements

our stockholders and the ownership of our capital stock. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.

In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investments in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the total voting power of the outstanding securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by the securities of one or more TRSs at the close of each calendar quarter. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

Our relationship with any TRS will be limited, and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. While we currently do not own any interest in a TRS, we may own any such interest in the future. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. A domestic TRS will pay federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is
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subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on anarm’s-length basis.

Any TRS of ours will pay federal, state and local income tax on its taxable income, and itsafter-tax net income will be available (but not required) to be distributed to us. We anticipate that the aggregate value of any TRS stock and securities owned by us will be significantly less than 20% of the value of our total assets (including the TRS stock and securities) at the close of each calendar quarter. Furthermore, we will monitor the value of our investments in TRSs for the purpose of ensuring compliance with the foregoing rule. In addition, we will scrutinize all of our transactions with TRSs for the purpose of ensuring that they are entered into onarm’s-length terms in order to avoid incurring the 100% excise tax described above. No assurance, however, can be given that we will be able to comply with the 20% limitation on ownership of TRS stock and securities on an ongoing basis so as to maintain our REIT qualification or avoid application of the 100% excise tax imposed on certainnon-arm’s-length transactions.

The ability of our board of directors to revoke our REIT qualification without stockholder approval may subject us to federal income tax and reduce distributions to our stockholders.

Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to be qualified as a REIT. If we cease to be a REIT, we would become subject to federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders and on the market price of our common stock.

Stockholders and prospective investors are urged to consult with their tax advisors regarding the effects of recently enacted tax legislation and other legislative, regulatory and administrative developments.

On December 22, 2017, President Trump signed into law H.R. 1, informally titled the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes major changes to the Code, including a number of provisions of the Code

Index to Financial Statements

that affect the taxation of REITs and their stockholders. AmongThe effect of the certain changes made by the TCJA are permanently reducing the generally applicable corporate tax rate, generally reducing the tax rate applicable to individuals and othernon-corporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026, eliminating or modifying certain previously allowed deductions (including substantially limiting interest deductibility and, for individuals, the deduction fornon-business state and local taxes), and, for taxable years beginning after December 31, 2017 and before January 1, 2026, providing for preferential rates of taxation through a deduction of up to 20% (subject to certain limitations) on most ordinary REIT dividends and certain trade or business income ofnon-corporate taxpayers. The TCJA also imposes new limitations on the deduction of net operating losses, which may result in us having to make additional taxable distributions to our stockholders in order to comply with REIT distribution requirements or avoid taxes on retained income and gains. The effect of the significant changes made by the TCJA is highlyremains uncertain, and administrative guidance will be required in order to fully evaluate the effect of many provisions. The effect of any technical corrections with respect to the TCJA could have an adverse effect on us or our stockholders. Stockholders and prospective investors should consult their tax advisors regarding the implications of the TCJA on their investment in our common stock.

We may face risks in connection with Section 1031 Exchanges.
We may engage in one or more real estate transactions intended to qualify for federal income tax deferral as a “like-kind exchange” under Section 1031 of the Code. If a transaction that is intended to qualify for deferral under Section 1031 is later determined to have been taxable, we may face adverse consequences. Additionally, if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax-deferred basis.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.

At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict when or if any new federal income tax law, regulation, or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation.

Risks Related to Our Common Stock

Level of cash distributions, market interest rates and other factors may affect the value of our common stock.

The market value of the equity securities of a REIT is based upon the market’s perception of the REIT’s growth potential and its current and potential future cash distributions, whether from operations, sales or refinancings, and upon the real estate market value of the underlying assets. Our common stock may trade at prices that are higher or lower than our net asset value per share. To the extent we retain operating cash flows for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. Our failure to meet the market’s expectations with regard to future earnings and cash distributions likely would adversely affect the market price of our common stock. In addition, the price of our common stock will be influenced by the dividend yield on the common stock relative to market interest rates and the dividend yields of other REITs. An increase in
22

market interest rates, which are currently at low levels relative to historical rates but have increased recently, could cause the market price of our common stock to go down. The trading price of the shares of common stock will also depend on many other factors, which may change from time to time, including:

•the market for similar securities;

•the attractiveness of REIT securities in comparison to the securities of other companies, taking into account, among other things, the higher tax rates imposed on dividends paid by REITs;

•government legislation, action or regulation;

•our issuance of debt or preferred equity securities;

•changes in earnings estimates by analysts and our ability to meet analysts’ earnings estimates;

•general economic conditions; and

•our financial condition, performance and prospects.

Index to Financial Statements

The number of shares of our common stock available for future sale could adversely affect the market price of our common stock and have a dilutive effect to our existing stockholders.

Sales of substantial amounts of shares of our common stock in the public market or the perception that such sales might occur could adversely affect the market price of the shares of our common stock. The issuance and vesting of any restricted stock granted to certain directors, executive officers and other employees under our Amended and Restated 20102019 Equity Incentive Plan, the issuance of our common stock upon the vesting of awards under our Amended and Restated Long-Term Incentive Plan, the issuance of our common stock in connection with property, portfolio or business acquisitions and other issuances of our common stock could have an adverse effect on the market price of our common stock. Future sales of shares of our common stock may be dilutive to existing stockholders.

The market price and trading volume of our common stock may be volatile.

The market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above the price you paid for such shares. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future.

Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

•our financial condition, performance, liquidity and prospects;

•actual or anticipated variations in our quarterly operating results or distributions;

•changes in our funds from operations (as defined by NAREITNareit and discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this Annual Report on Form10-K) or earnings;

•publication of research reports about us or the real estate industry;

•changes in earnings estimates by analysts;

•our ability to meet analysts’ earnings estimates;

•increases in market interest rates that lead purchasers of our shares to demand a higher yield;

•changes in market valuations of similar companies;

•adverse market reaction to any additional debt we incur in the future;

•additions or departures of key management personnel;

•the market for similar securities issued by REITs;

•actions by institutional stockholders;

•speculation in the press or investment community;

•our compliance with generally accepted accounting principles;

•our compliance with applicable laws and regulations and the listing requirements of the New York Stock Exchange;

•the realization of any of the other risk factors presented in this Annual Report on Form10-K; and

•general market, including capital market and real estate market and economic conditions.

Index to Financial Statements

Future offerings of debt securities and the incurrence of other future indebtedness, which would be senior to our common stock upon liquidation, and/or preferred stock which may be senior to our common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price of our common stock.

Upon liquidation, holders of our debt securities and any shares of preferred stock, and lenders with respect to other borrowings, including our existing credit facility and mortgage loans payable, will receive distributions of our available assets prior to the holders of our common stock. In the future we may attempt to increase our capital resources by making additional
23

offerings of debt and equity securities. Additional equity offerings may dilute the holdings of our existing stockholders and/or reduce the market price of our common stock. In addition, future offerings of debt securities or the incurrence of additional other indebtedness may reduce the market price of our common stock. Holders of our common stock are not entitled to preemptive rights or other protections against dilution. Our preferred stock, if issued in the future, could have a preference on liquidating distributions and a preference on dividend payments that could limit our ability to pay a dividend or make another distribution to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

We may be unable to generate sufficient cash flows from our operations to make distributions to our stockholders at any time in the future.

Our ability to make distributions to our stockholders may be adversely affected by the risk factors described in this Annual Report on Form10-K. We may not generate sufficient income to make distributions to our stockholders. Our board of directors has the sole discretion to determine the timing, form and amount of any distributions to our stockholders. Our board of directors will make determinations regarding distributions based upon, among other factors, our financial performance, any debt service obligations, any debt covenants, and capital expenditure requirements. Among the factors that could impair our ability to make distributions to our stockholders are:

•our inability to realize attractive returns on our investments;

•unanticipated expenses or reduced revenues that reduce our cash flow ornon-cash earnings;

•our debt service obligations; and

•decreases in the value of our industrial properties that we own.

As a result, no assurance can be given that we will be able to make distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will increase or even be maintained over time, any of which could materially and adversely affect the market price of our shares of common stock.

Our ability to pay dividends is limited by the requirements of Maryland law.

Our ability to pay dividends on our stock is limited by the laws of the State of Maryland. Under applicable Maryland law, a Maryland corporation generally may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business, or the corporation’s total assets would be less than the sum of its total liabilities plus, unless the corporation’s charter provides otherwise, the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. Accordingly, we generally may not make a distribution on our stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus, unless the

Index to Financial Statements

terms of such class or series provide otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred stock then outstanding, if any, with preferences senior to those of our outstanding stock.



Item 1B.Unresolved Staff Comments.

Item 1B.  Unresolved Staff Comments.
None.



Item 2.Properties.

Item 2.  Properties.

As of December 31, 2017,2019, we owned 196a total of 220 buildings aggregating approximately 13.013.3 million square feet, and ten19 improved land parcels consisting of 47.9 acres.approximately 77.6 acres and four properties under redevelopment expected to contain approximately 0.5 million square feet upon completion. The buildings and improved land parcels were approximately 96.8% and 92.0% leased, respectively, to 493 customers, the largest of which accounted for approximately 3.6% 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. As of December 31, 2017, our properties were approximately 97.3% leased to 426 customers, the largest of which accounted for approximately 5.1% of our total annualized base rent. We owninvest in several types of industrial real estate, including warehouse/distribution (approximately 93.5% of our total portfolio square footage as of December 31, 2017),buildings, flex buildings (including light industrial and research and development, or R&D) (approximately 5.1%), transshipment buildings and transshipment (approximately 1.4%).improved land parcels. See “Item 1 – Our Investment Strategy – Industrial Facility General Characteristics” in this Annual
24

Report on Form10-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, ScheduleIII-Real Estate Investments and Accumulated Depreciation” in this Annual Report on Form10-K for a detailed listing of our properties.


The following table summarizes by type our investments in real estate as of December 31, 2019:

TypeNumber of Buildings or Improved Land Parcels
Annualized Base Rent (000's) 1
% of Total
Warehouse/distribution195$110,734  81.5 %
Flex119,793  7.2 %
Transshipment147,482  5.5 %
Improved land197,835  5.8 %
Total239$135,844  100.0 %


1Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of December 31, 2019, multiplied by 12.

The following table summarizes by market our investments in real estate as of December 31, 2017:

Market

 Number of
Buildings		  Rentable
Square Feet		  % of
Total		  Occupancy
% as of
December 31,
2017		  Annualized
Base Rent
(000’s) 1		  % of
Total		  Annualized
Base Rent
Per
Occupied
Square
Foot		  Weighted
Average
Remaining
Lease Term
(Years) 2		  Gross
Book
Value
(000’s) 3		 

Los Angeles

  35   2,637,597   20.3%   100.0%  $19,726   18.6%  $7.48   7.4  $371,716 

Northern New Jersey/New York City

  55   3,145,507   24.3%   98.6%   26,369   24.9%   8.51   4.3   412,808 

San Francisco Bay Area

  27   1,368,607   10.6%   96.9%   14,688   13.8%   11.08   4.9   205,210 

Seattle

  24   1,626,620   12.5%   99.4%   12,275   11.6%   7.59   3.5   180,125 

Miami

  31   1,991,992   15.4%   97.9%   14,665   13.8%   7.52   3.6   183,377 

Washington, D.C.

  24   2,197,961   16.9%   90.7%   18,337   17.3%   9.19   4.3   283,694 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total/Weighted Average

  196   12,968,284   100.0%   97.3%  $106,060   100.0%  $8.40   4.8  $1,636,930 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

2019:



25

Los AngelesNorthern New Jersey/New York CitySan Francisco Bay AreaSeattleMiamiWashington, D.C.Total/Weighted Average
Investments in Real Estate
Number of Buildings4262  40  272821220  
Rentable Square Feet2,523,9693,552,6812,028,9091,776,9541,563,3261,874,37813,320,217  
% of Total19.0 %26.7 %15.2 %13.3 %11.7 %14.1 %100.0 %
Occupancy % as of December 31, 201997.7 %98.6 %91.1 %99.1 %97.1 %96.1 %96.8 %
Annualized Base Rent (000’s) 1
$21,398  36,54022,82215,58713,65618,006$128,009  
% of Total16.7 %28.5 %17.8 %12.2 %10.7 %14.1 %100.0 %
Annualized Base Rent1 Per Occupied Square Foot
$8.67  10.4312.348.858.999.99$9.92  
Weighted Average Remaining Lease Term (Years) 2
6.73.64.23.24.34.04.4  
Investments in Improved Land
Number of Land Parcels59112119  
Acres10.148.71.30.93.213.477.6  
% of Total13.1 %62.8 %1.6 %1.2 %4.1 %17.2 %100.0 %
Occupancy % as of December 31, 201947.8 %100.0 %100.0 %— %100.0 %100.0 %92.0 %
Annualized Base Rent (000’s) 1
$1,007  5,480195—389764$7,835  
% of Total12.8 %69.9 %2.5 %— %5.0 %9.8 %100.0 %
Annualized Base Rent1 Per Occupied Square Foot
$4.88  2.633.54—2.821.31$2.54  
Weighted Average Remaining Lease Term (Years) 2
3.15.80.3—3.6—4.3
Total Investments in Real Estate
Annualized Base Rent (000’s) 1
$22,405  42,020  23,017  15,587  14,045  18,770  $135,844  
Gross Book Value (000’s) 3
$406,212  642,686369,030313,927167,156255,183$2,154,194  

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, 2017, multiplied by 12.
2Weighted average remaining lease term is calculated by summing the remaining lease term of each lease as of December 31, 2017, weighted by the respective square footage.
3Includes 47.9 acres of improved land as discussed below.

We also own ten improved land parcels totaling approximately 47.9 acres that are approximately 78.0% leased to ten tenants. Such land is used for truck, trailer and container storage and/or car parking. In the future, we may consider redeveloping such land.

Index to Financial Statements

The following table summarizes by market our investments in improved land as of December 31, 2017:

Market

  Number of
Parcels		   Acres   % of
Total		  Occupancy
% as of
December 31,
2017		  Annualized
Base Rent
(000’s) 1		   % of
Total		  Annualized
Base Rent
Per
Occupied
Square
Foot		   Weighted
Average
Remaining
Lease Term
(Years) 2		 

Los Angeles

   3    8.0    16.7%   100.0%  $466    15.5%  $1.33    1.4 

Northern New Jersey/New York City

   4    23.3    48.6%   54.8%   1,596    53.1%   2.86    6.2 

San Francisco Bay Area

   —      —      0.0%   —     —      0.0%   —      —   

Seattle

   —      —      0.0%   —     —      0.0%   —      —   

Miami

   2    3.2    6.7%   100.0%   209    7.0%   1.51    1.3 

Washington, D.C.

   1    13.4    28.0%   100.0%   734    24.4%   1.26    2.3 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total/Weighted Average

   10    47.9    100.0%   78.0%  $3,005    100.0%  $1.85    3.4 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

1Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of December 31, 2017, multiplied by 12.
2Weighted average remaining lease term is calculated by summing the remaining lease term of each lease as of December 31, 2017, weighted by the respective square footage.

2019, multiplied by 12.

2Weighted average remaining lease term is calculated by summing the remaining lease term of each lease as of December 31, 2019, weighted by the respective square footage.
3Includes four properties under redevelopment expected to contain approximately 0.5 million square feet upon completion, as discussed below.
As of December 31, 2019, we owned four properties under redevelopment expected to contain approximately 0.5 million square feet upon completion with a total expected investment of approximately $120.4 million, including redevelopment costs, capitalized interest and other costs of approximately $52.4 million.
26

The following table summarizes our capital expenditures incurred during the three months and years ended December 31, 20172019 and 20162018 (dollars in thousands):

   For the Three
Months Ended
December 31,		   For the Year Ended
December 31,		 
   2017   2016   2017   2016 

Building improvements

  $2,742   $2,862   $11,626   $11,621 

Tenant improvements

   2,147    3,121    7,083    8,398 

Leasing commissions

   2,790    2,638    7,537    9,613 

Redevelopment and expansion

   —      —      —      15,641 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capital expenditures 1

  $7,679   $8,621   $26,246   $45,273 
  

 

 

   

 

 

   

 

 

   

 

 

 

1Includes approximately $3.7 million and $5.2 million for the three months ended December 31, 2017 and 2016, respectively, and approximately $13.3 million and $35.2 million for the years ended December 31, 2017 and 2016,
 For the Three Months Ended December 31,For the Year Ended December 31,
 2019201820192018
Building improvements$8,171  $6,855  $21,385  $17,953  
Tenant improvements2,268  2,336  4,669  4,312  
Leasing commissions3,224  3,174  7,813  7,937  
Redevelopment, renovation and expansion4,336  6,026  27,968  11,639  
Total capital expenditures 1
$17,999  $18,391  $61,835  $41,841  

1Includes approximately $10.8 million and $13.7 million for the three months ended December 31, 2019 and 2018, respectively, and approximately $42.5 million and $27.5 million for the years ended December 31, 2019 and 2018, respectively, related to leasing acquired vacancy, redevelopment construction in progress and renovation and expansion projects (stabilization capital) at 12 and 14 properties for the three months ended December 31, 2017 and 2016, respectively, and 18 and 25 properties for the years ended December 31, 2017 and 2016, respectively.

Index to Financial Statements
leasing acquired vacancy, redevelopment construction in progress and renovation and expansion projects (stabilization capital) at 17 and 13 properties for the three months ended December 31, 2019 and 2018, respectively, and 20 and 21 properties for the years ended December 31, 2019 and 2018, 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 92.6% 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 December 31, 2019 are as follows:

CustomerLeases
Rentable
Square Feet
% of Total
Rentable
Square Feet
Annualized
Base Rent
(000’s) 1
% of Total
Annualized
Base Rent
1  United States Government9  381,431  2.9 %$4,919  3.6 %
2  
FedEx Corporation 2
7  490,779  3.7 %4,872  3.6 %
3  Amazon.com3  260,462  2.0 %4,805  3.5 %
4  Danaher3  171,707  1.3 %3,235  2.4 %
5  AmerisourceBergen1  211,418  1.5 %2,469  1.7 %
6  DirectBuy Home Improvement1  230,891  1.7 %1,860  1.4 %
7  XPO Logistics2  180,717  1.4 %1,672  1.2 %
8  District of Columbia3  124,744  0.9 %1,632  1.2 %
9  Miami International Freight Systems1  192,454  1.4 %1,463  1.1 %
10  
Port Kearny Security, Inc. 3
1  —  — %1,437  1.1 %
11  O'Neill Logistics2  237,692  1.8 %1,429  1.1 %
12  YRC2  61,252  0.5 %1,401  1.0 %
13  Bar Logistics2  203,263  1.5 %1,354  1.0 %
14  L3 Harris Technologies, Inc.1  147,898  1.1 %1,342  1.0 %
15  Saia Motor Freight Line LLC1  52,086  0.4 %1,245  0.9 %
16  Space Systems/Loral LLC2  107,060  0.8 %1,210  0.9 %
17  JAM'N Logistics1  110,336  0.8 %1,193  0.9 %
18  Northrop Grumman Systems1  103,200  0.8 %1,183  0.9 %
19  
Fredmore Inc. DBA Airpark Newark 4
1  —  — %1,171  0.9 %
20  Exquisite Apparel Corporation1  114,061  0.9 %1,077  0.8 %
Total45  3,381,451  25.4 %$40,969  30.2 %
27

1Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of December 31, 2019, multiplied by 12.
2Includes an improved land parcel consisting of 2.3 acres.
3Lease area consists of 16.9 acres of improved land.
4Lease area consists of 10.6 acres of improved land.
The following table summarizes the anticipated lease expirations for leases in place at December 31, 2017,2019, without giving effect to 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		   % of Total
Annualized
Base Rent		 

2018 1

   1,216,419    9.4%  $9,911    8.4% 

2019

   2,064,797    15.9%   16,240    13.7% 

2020

   1,696,971    13.1%   15,695    13.2% 

2021

   2,131,434    16.4%   18,099    15.3% 

2022

   1,580,411    12.2%   15,575    13.1% 

Thereafter

   3,934,552    30.3%   43,012    36.3% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total

   12,624,584    97.3%  $118,532    100.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

1Includes leases that expire on or after December 31, 2017 andmonth-to-month leases totaling approximately 26,963 square feet.
2Annualized base rent is calculated as monthly base rent per the leases at expiration, excluding any partial or full rent abatements, as of December 31, 2017 multiplied by 12.

Year
Rentable
Square Feet
% of Total
Rentable
Square Feet
Annualized
Base Rent
(000’s) 2
% of Total
Annualized
Base Rent
2020 1
1,753,594  12.6 %$15,976  9.9 %
20212,403,025  17.3 %23,089  14.3 %
20221,670,792  12.1 %17,696  10.9 %
20231,573,994  11.4 %19,922  12.3 %
20241,613,286  11.6 %20,503  12.7 %
Thereafter4,168,164  30.1 %64,411  39.9 %
Total13,182,855  95.1 %$161,597  100.0 %
1Includes leases that expire on or after December 31, 2019 and month-to-month leases totaling approximately 57,698 square feet.
2Annualized base rent is calculated as monthly base rent per the leases at expiration, excluding any partial or full rent abatements, as of December 31, 2019, multiplied by 12.
Our ability tore-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, 2017,2019, leases representing approximately 9.4%12.6% of the total rentable square footage of our portfolio are scheduled to expire during the year ending December 31, 2018.2020. We currently expect that on average, the rental rates we are likely to achieve on any new(re-leased) or renewed leases for our 20182020 expirations will be above the rates currently being paid for the same space. The tenant at our Belleville property will receiveRent changes on new and renewed leases totaling approximately $0.60.5 million insquare feet commencing during the three months ended December 31, 2019 were approximately 15.3% higher as compared to the previous rental rates for that same space, and rent abatementschanges on new and renewed leases totaling approximately 2.4 million square feet commencing during 2018 under the terms of a previously negotiatedten-year lease extension.year ended December 31, 2019 were approximately 17.3% higher as compared to the previous rental rates for that same space. 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 bere-leased at all or at rental rates 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 andre-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.

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 91.8% 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 anon-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.

Index to Financial Statements

Our top 20 customers based on annualized base rent as of December 31, 2017 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  FedEx Corporation   8   542,865    4.2%  $5,606    5.1% 
2  United States Government   9   381,431    2.9%   4,696    4.3% 
3  Danaher   3   171,707    1.3%   2,961    2.7% 
4  H.D. Smith Wholesale Drug Company   1   211,418    1.6%   2,260    2.1% 
5  Northrop Grumman Systems   2   199,866    1.5%   2,197    2.0% 
6  District of Columbia   3   149,203    1.2%   1,600    1.5% 
7  XPO Logistics   2   180,717    1.4%   1,497    1.4% 
8  Synergy Custom Fixtures   1   301,983    2.3%   1,478    1.4% 
9  West Coast Warehouse   1   265,500    2.0%   1,468    1.3% 
10  YRC   2   61,252    0.5%   1,337    1.2% 
11  O’Neill Logistics   2   237,692    1.8%   1,323    1.2% 
12  Miami International Freight Systems   1   192,454    1.5%   1,245    1.1% 
13  Bar Logistics   2   203,263    1.6%   1,220    1.1% 
14  Avborne Accessory Group   1   137,594    1.1%   1,113    1.0% 
15  Space Systems/Loral LLC   2   107,060    0.8%   1,107    1.0% 
16  Amazon.com   1   158,168    1.2%   1,044    1.0% 
17  Exquisite Apparel Corporation   1   114,061    0.9%   985   0.9% 
18  JAM’N Logistics   1   110,336    0.9%   936   0.9% 
19  Home Depot   1   192,000    1.5%   930   0.9% 
20  Service West Inc.   1   129,279    1.0%   820   0.7% 
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 
  

Total

   45   4,047,849    31.2%  $35,823    32.8% 
    

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

1Annualized base rent is calculated as contractual monthly base rent per the leases, excluding any partial or full rent abatements, as of December 31, 2017, multiplied by 12.

As of December 31, 2017, nine of our2019, four properties with a gross investment book value of approximately $153.7$114.9 million were encumbered by mortgage loans payable, including premiums and net of deferred financing costs, totaling approximately $64.8$44.3 million, which bear interest at a weighted average fixed annual rate of 4.0%4.1%.

Item 3.Legal Proceedings.

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.

Item 4.  Mine Safety Disclosures.
Not Applicable.

Index to Financial Statements



PART II


28

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information

Our common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “TRNO”. The following table sets forth, for the indicated periods, the high and low sale prices for our common stock, as reported on the NYSE and the per share dividends declared:

Year

  High   Low   Dividend per
common share		 

2017

      

First Quarter

  $29.04   $26.52   $0.20 

Second Quarter

   33.81    28.01    0.20 

Third Quarter

   36.99    32.74    0.22 

Fourth Quarter

   38.32    34.78    0.22 

2016

      

First Quarter

  $23.81   $20.67   $0.18 

Second Quarter

   25.59    21.98    0.18 

Third Quarter

   28.12    25.35    0.20 

Fourth Quarter

   28.83    24.91    0.20 

As of January 25, 2018,30, 2020, there were approximately 18,42522,995 holders of record of shares of our common stock. This number does not include stockholders for which shares are held in “nominee” or “street” name.

Distribution Policy

We intend to pay regular quarterly distributions when, as and if authorized by our board of directors and declared by us. Our ability to make distributions to our stockholders also will depend on our levels of retained cash flows, which we intend to use as a source of investment capital. In order to qualify for taxation as a REIT, we must distribute to our stockholders an amount at least equal to:

(i)90% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gain); plus

(ii)90% of the excess of ourafter-tax net income, if any, from foreclosure property over the tax imposed on such income by the Code; less

(iii)the sum of certain items ofnon-cash income.

(i)90% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gain); plus
(ii)90% of the excess of our after-tax net income, if any, from foreclosure property over the tax imposed on such income by the Code; less
(iii)the sum of certain items of non-cash income.
Generally, we expect to distribute 100% of our REIT taxable income so as to avoid the income and excise tax on undistributed REIT taxable income. However, we cannot assure you as to our ability to sustain those distributions.

The timing and frequency of distributions will be authorized by our board of directors and declared by us based upon a variety of factors, including:

•actual results of operations;

•our level of retained cash flows;

•any debt service requirements;

•capital expenditure requirements for our properties;

Index to Financial Statements
•our property dispositions;

•our taxable income;

•the annual distribution requirement under the REIT provisions of the Code;

•our operating expenses;

•restrictions on the availability of funds under Maryland law; and

•other factors that our board of directors may deem relevant.

In addition, our credit facility has a covenant limiting our maximum REIT distribution paid to a percentage of our funds from operations (see “Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Non-GAAP Financial Measures”) before acquisition costs of 95% for each fiscal year (subject to distribution payments necessary to preserve our REIT status).

To the extent that, in respect of any calendar year, cash available for distribution is less than our REIT taxable income, we could be required to sell assets or borrow funds to make cash distributions or make a portion of the required distribution in the form of a taxable share distribution or distribution of debt securities. Income as computed for purposes of the tax rules described above will not necessarily correspond to our income as determined for financial reporting purposes.

Distributions to our stockholders generally are taxable to our stockholders as ordinary income; however, because a significant portion of our investments are equity ownership interests in industrial properties, which generate depreciation and othernon-cash charges against our income, a portion of our distributions may constitute atax-free return of capital, although our current intention is to limit the level of such return of capital.

The following table sets forth the cash dividends paid or payable during the years ended December 31, 2017 and 2016:

For the Three

Months Ended

 Security Dividend
per Share		  Declaration Date Record Date Date Paid
March 31, 2017 Common stock $0.200000  February 7, 2017 March 28, 2017 April 12, 2017
March 31, 2017 Preferred stock $0.484375  February 7, 2017 March 10, 2017 March 31, 2017
June 30, 2017 Common stock $0.200000  May 2, 2017 July 7, 2017 July 21, 2017
June 30, 2017 Preferred stock $0.484375  May 2, 2017 June 9, 2017 June 30, 2017
September 30, 2017 Common stock $0.220000  August 1, 2017 October 6, 2017 October 21, 2017
December 31, 2017 Common stock $0.220000  October 31, 2017 December 29, 2017 January 12, 2018

For the Three

Months Ended

 Security Dividend
per Share		  Declaration Date Record Date Date Paid
March 31, 2016 Common stock $0.180000  February 9, 2016 March 28, 2016 April 12, 2016
March 31, 2016 Preferred stock $0.484375  February 9, 2016 March 10, 2016 March 31, 2016
June 30, 2016 Common stock $0.180000  May 3, 2016 July 7, 2016 July 21, 2016
June 30, 2016 Preferred stock $0.484375  May 3, 2016 June 10, 2016 June 30, 2016
September 30, 2016 Common stock $0.200000  July 26, 2016 October 7, 2016 October 21, 2016
September 30, 2016 Preferred stock $0.484375  July 26, 2016 September 9, 2016 September 30, 2016
December 31, 2016 Common stock $0.200000  November 1, 2016 December 30, 2016 January 13, 2017
December 31, 2016 Preferred stock $0.484375  November 1, 2016 December 9, 2016 December 30, 2016

Index to Financial Statements

Performance Graph

The following graph compares the change in the cumulative total stockholder return on our common stock during the period from December 31, 20122014 to December 31, 20172019 with the cumulative total return of the Standard and Poor’s 500 Stock Index, the MSCI U.S. REIT Index (RMS) and the FTSE NAREITNareit Equity Industrial Index. The return shown on the graph is not necessarily indicative of future performance. The comparison assumes that $100 was invested on December 31, 20122014 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any.


29

trno-20191231_g1.jpg

The performance graph and related information shall not be deemed “soliciting material” or be deemed to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing, except to the extent that the company specifically incorporates it by reference into such filing.

Index to Financial Statements

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities
None.

Item 6.Selected Financial Data.

Item 6.  Selected Financial Data.
The following table sets forth selected financial data derived from our audited consolidated financial statements as of and for the years ended December 31, 2019, 2018, 2017, 2016, 2015, 2014, and 2013,2015, should be read in conjunction with the consolidated financial statements and notes thereto included in this Annual Report on Form10-K beginning on pageF-1 and with Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (dollars in thousands, except share and per share amounts):

   For the Year Ended December 31, 
   2017  2016  2015  2014  2013 

Operating Data

      

Total revenues

  $132,484  $108,418  $95,895  $68,875  $45,529 

Total costs and expenses

   93,435   87,172   82,240   51,567   36,973 

Gain on sales of real estate investments

   30,654   7,140   10,567   —     —   

Income from continuing operations

   53,095   15,118   14,601   10,718   2,451 

Income from discontinued operations

   —     —     —     —     1,412 

Gain on sales of real estate investments

   —     —     —     —     2,778 

Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends

   49,015   11,458   10,958   7,126   3,056 

Earnings per Common Share - Basic and Diluted:

      

Income (loss) from continuing operations available to common stockholders, net of redemption of preferred stock and preferred stock dividends

  $0.95  $0.26  $0.26  $0.23  $(0.05) 

Income from discontinued operations

   —     —     —     —     0.20 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends

  $0.95  $0.26  $0.26  $0.23  $0.15 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Dividends declared per common share

  $0.84  $0.76  $0.66  $0.57  $0.51 

Dividends declared per preferred share

   0.97   1.94   1.94   1.94   1.94 

Basic and Diluted Weighted Average Common Shares Outstanding

   51,357,719   44,725,936   42,861,276   30,433,017   21,011,276 

Other Data

      

Funds from operations 1

  $56,070  $38,391  $36,172  $26,097  $12,689 

Basic and diluted FFO per common share 1

   1.09   0.86   0.84   0.86   0.60 

Cash flows provided by (used in):

      

Operating activities

  $69,498  $49,241  $42,068  $29,321  $13,495 

Investing activities

   (249,118)   (149,629)   (259,664)   (245,526)   (201,400) 

Financing activities

   203,942   93,758   45,140   404,207   189,429 

Balance Sheet Data

      

Investments in real estate at cost 2

  $1,636,930  $1,343,038  $1,179,920  $901,273  $651,839 

Total assets

   1,567,871   1,278,981   1,152,138   1,074,735   644,165 

Total debt

   461,683   415,327   381,475   302,470   190,472 

Total stockholders’ equity

   1,027,494   811,805   733,082   747,036   438,835 

Index
30

 For the Year Ended December 31,
 2019  2018  2017  2016  2015  
Operating Data
Total revenues$171,022  $151,657  $132,484  $108,418  $95,895  
Total costs and expenses112,185  102,431  93,435  87,172  82,240  
Gain on sales of real estate investments9,391  28,610  30,654  7,140  10,567  
Income from operations55,516  63,289  53,095  15,118  14,601  
Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends55,165  62,888  49,015  11,458  10,958  
Earnings per Common Share - Basic and Diluted:
Net income available to common stockholders, basic, net of redemption of preferred stock and preferred stock dividends$0.86  $1.09  $0.95  $0.26  $0.26  
Net income available to common stockholders, diluted, net of redemption of preferred stock and preferred stock dividends$0.85  $1.09  $0.95  $0.26  $0.26  
Dividends declared per common share$1.02  $0.92  $0.84  $0.76  $0.66  
Dividends declared per preferred share$—  $—  $0.97  $1.94  $1.94  
Basic Weighted Average Common Shares Outstanding64,428,406  57,486,399  51,357,719  44,725,936  42,861,276  
Diluted Weighted Average Common Shares Outstanding64,722,976  57,486,399  51,357,719  44,725,936  42,861,276  
Other Data
Funds from operations 1
$89,467  $74,904  $56,070  $38,391  $36,172  
Basic FFO per common share 1
1.39  1.30  1.09  0.86  0.84  
Diluted FFO per common share 1
1.38  1.30  1.09  0.86  0.84  
Cash flows provided by (used in):
Operating activities$94,688  $77,599  $69,498  $49,241  $42,068  
Investing activities(251,482) (234,957) (249,118) (149,629) (259,664) 
Financing activities235,054  149,037  203,942  93,758  45,140  
Balance Sheet Data
Investments in real estate at cost 2
$2,154,194  $1,845,776  $1,636,930  $1,343,038  $1,179,920  
Total assets2,108,464  1,796,504  1,567,871  1,278,981  1,152,138  
Total debt491,575  462,097  461,683  415,327  381,475  
Total stockholders’ equity1,517,123  1,247,797  1,027,494  811,805  733,082  

1See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures,” in this Annual Report on Form 10-K for a reconciliation to Financial Statements
net income, net of redemption of preferred stock and preferred stock dividends and a discussion of why we believe funds from operations, or FFO, is a useful supplemental measure of operating performance, ways in which investors might use FFO when assessing our financial performance, and FFO’s limitations as a measurement tool.
1See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Non-GAAP Financial Measures,” in this Annual Report on Form10-K for a reconciliation to net income, net of redemption of preferred stock and preferred stock dividends and a discussion of why we believe funds from operations, or FFO, is a useful supplemental measure of operating performance, ways in which investors might use FFO when assessing our financial performance, and FFO’s limitations as a measurement tool.
2Excludes one property held for sale with a gross book value of approximately $6.3 million as of December 31, 2015 and one property held for sale with a gross book value of approximately $6.9 million as of December 31, 2014.

2Excludes one property held for sale with a gross book value of approximately $6.3 million as of December 31, 2015.

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
31

You should read the following discussion in conjunction with the sections of this Annual Report onForm 10-K entitled “Risk Factors”, “Forward-Looking Statements”, “Business” and our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form10-K. This discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this Annual Report on Form10-K.

Overview

We acquire, own and operate 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 buildings (approximately 93.5%81.5% of our total portfolio square footageannualized base rent as of December 31, 2017)2019), flex buildings (including light industrial and R&D) (approximately 5.1%7.2%), transshipment buildings (approximately 5.5%) and transshipmentimproved land parcels (approximately 1.4%5.8%). 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 December 31, 2017,2019, we owned 196a total of 220 buildings aggregating approximately 13.013.3 million square feet, and ten19 improved land parcels consisting of 47.9approximately 77.6 acres which we purchased for an aggregate purchase price ofand four properties under redevelopment expected to contain approximately $1.5 billion.0.5 million square feet upon completion. As of December 31, 2017,2019, our propertiesbuildings and improved land parcels were approximately 97.3%96.8% and 92.0% leased, respectively, to 426493 customers, the largest of which accounted for approximately 5.1%3.6% of our total annualized base rent. We are an internally managed Maryland corporation and elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year ended December 31, 2010.

Our Investment Strategy

We acquire, own and operate industrial propertiesreal 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, flex (including light industrial and R&D), transshipment and transshipment.improved land. 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.


We selected our target markets by drawing upon the experience of our executive management investing and operating in over 50 global industrial markets located in North America, Europe and Asia, the fundamentals of supply and demand, and in anticipation of trends in logistics patterns resulting from population changes, regulatory and physical constraints, changes in technology, e-commerce, potential long term increases in carbon pricesthe economic and environmental benefits of reducing vehicle miles traveled and other factors. We believe that our target markets have attractive long term investment attributes. We target assets with characteristics that include, but are not limited to, the following:

•Located in high population coastal markets;

•Close proximity to transportation infrastructure (such as sea ports, airports, highways and railways);

Index to Financial Statements
•Situated in supply-constrained submarkets with barriers to new industrial development, as a result of physical and/or regulatory constraints;

•Functional and flexible layout that can be modified to accommodate single and multiple tenants;

•Acquisition price at a discount to the replacement cost of the property;

•Potential for enhanced return throughre-tenanting or operational and physical improvements; and

•Opportunity for higher and better use of the property over time.

In general, we prefer to utilize local third-party property managers forday-to-day property management and as a source of acquisition opportunities. We believe outsourcing property management is cost effective and provides us with operational flexibility. We may directly manage properties in the future if we determine such direct property management is in our best interest.

We have no current intention to acquire undeveloped or unimproved industrial land or to pursue greenfield ground up development. However,Nevertheless, we may pursue redevelopment, renovation and expansion opportunities of properties that we own, acquire properties and improved land parcels with the intent to redevelop in the near-term, orand acquire adjacent land to expand our existing facilities.

We expect that we will continue to acquire the significant majority of our investments as equity interests in individual properties, portfolios of properties or improved industrial land parcels which may be rented without a building in place. We may also acquire industrial properties through the acquisition of other corporations or entities that own industrial real estate. We
32

will opportunistically targetmake investments in debt secured by industrial real estate that would otherwise meet our investment criteria with the intention of ultimately acquiring the underlying real estate. We currently do not intend to target specific percentages of holdings of particular types of industrial properties. This expectation is based upon prevailing market conditions and may change over time in response to different prevailing market conditions.

The properties we acquire may be stabilized (fully leased) or unstabilized (have near term lease expirations, or be partially or fully vacant)vacant and may require physical repositioning). During the period from February 16, 2010 to December 31, 2017,2019, we have stabilized 5874 properties.

We sell properties from time to time when we believe the prospective total return from a property is particularly low relative to its market value and/or the market value of the property is significantly greater than its estimated replacement cost. Capital from such sales is reinvested into properties that are expected to provide better prospective returns or returned to shareholders. We have disposed of 1119 properties since inception in 2010 for a cumulativean aggregate sales price of approximately $160.4$291.4 million and a total gain of approximately $55.1$93.1 million.

Index to Financial Statements

2017

2019 Developments

Acquisition Activity

During 2017,2019, we acquired 3517 industrial buildings containing approximately 1.70.7 million square feet and fivefour improved land parcels consisting ofcontaining approximately 25.122.6 acres for a total purchase price of approximately $292.7$273.6 million. The properties and improved land parcels were acquired from unrelated third parties using existing cash on hand, net proceeds from dispositions and net proceeds from the issuance of common stock and senior unsecured notes, proceeds from the dispositions of properties, and proceeds from borrowings on our revolving credit facility.stock. The following table sets forth the industrial properties and improved land parcels we acquired during 2017:

Property Name

 

Location

 

Acquisition Date

 Number of
Buildings		  Square
Feet		  Purchase Price
(in thousands) 1		  Stabilized
Cap Rate 2		 

Acacia

 Compton, CA January 25, 2017  1   45,776  $7,103   4.9% 

637 S. Lucile

 Seattle, WA February 3, 2017  1   45,320   7,750   6.0% 

Lynwood 3

 Lynwood, CA April 20, 2017  3   477,153   31,378   3.9% 

West Side Ave

 North Bergen, NJ April 20, 2017  1   126,491   14,000   5.3% 

Hanford

 Seattle, WA April 21, 2017  1   34,983   5,940   5.0% 

2920 V Street

 Washington, D.C. May 10, 2017  1   21,666   3,727   5.0% 

Avenue A

 Carlstadt, NJ May 10, 2017  4   32,676   12,000   5.7% 

South Main III

 Gardena, CA June 2, 2017  1   114,061   24,700   3.7% 

Frelinghuysen 4

 Newark, NJ June 29, 2017  —     —     16,250   5.3% 

Stockton 5

 Newark, NJ June 30, 2017  —     —     13,200   5.4% 

Telegraph

 Santa Fe Springs, CA July 6, 2017  2   86,814   14,930   4.7% 

Dawson

 Seattle, WA July 7, 2017  1   13,176   4,000   2.8% 

Walnut

 Compton, CA July 21, 2017  1   57,520   9,352   5.2% 

NW 70th IV

 Miami, FL August 4, 2017  1   15,965   2,515   6.1% 

Kero Road 6

 Carlstadt, NJ September 1, 2017  2   43,407   13,500   5.2% 

Hotchkiss

 Fremont, CA September 28, 2017  1   40,830   7,275   5.2% 

104th St

 Los Angeles, CA October 19, 2017  1   20,055   4,750   4.5% 

NW 94th Ave

 Doral, FL October 23, 2017  1   38,430   6,759   5.4% 

NW 70th V 7

 Miami, FL October 30, 2017  1   59,400   8,400   5.4% 

2315 E Dominguez 8

 Los Angeles, CA November 30, 2017  —     —     12,860   5.4% 

1855 W 139th St

 Carson, CA December 15, 2017  2   230,891   37,550   4.2% 

Hawthorne

 Hawthorne, CA December 19, 2017  8   152,025   27,600   4.4% 

New Dutch

 Fairfield, NJ December 20, 2017  1   50,400   7,200   5.4% 
   

 

 

  

 

 

  

 

 

  

 

 

 

Total/Weighted Average

    35   1,707,039  $292,739   4.7% 
   

 

 

  

 

 

  

 

 

  

 

 

 

1Excludes intangible liabilities and mortgage premiums, if any. The total aggregate investment was approximately $319.7 million, including $5.5 million in closing costs and acquisition costs.
2Stabilized 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 this Annual Report on Form10-K.
3Includes approximately one million square feet of land, which is 100% ground leased on a long-term basis to two tenants, and contains two industrial distribution buildings and one rail transshipment facility.
4Represents an improved land parcel containing approximately 10.6 acres.
5Represents an improved land parcel containing approximately 7.2 acres.
6Also includes an improved land parcel containing approximately 1.1 acres.
7Also includes an improved land parcel containing approximately 0.9 acres.
8Represents an improved land parcel containing approximately 5.4 acres.
2019:

Index
Property NameLocationAcquisition Date
Number of
Buildings
Square
Feet
Purchase Price
(in thousands) 1
Stabilized
Cap Rate 2
49th StreetQueens, NYFebruary 12, 20191  19,000  $24,017  5.3 %
81 N Hackensack 3
Kearny, NJMarch 8, 2019—  —  25,000  5.3 %
48 3rd and 286 Central 4
Kearny, NJMarch 29, 20191  28,124  14,085  5.4 %
Minnesota and TennesseeSan Francisco, CAMay 28, 20192  119,089  47,775  4.0 %
51 Kero 5
Carlstadt, NJAugust 7, 2019—  —  4,025  5.0 %
Anderson 6
Los Angeles, CAAugust 19, 20195  53,016  18,100  5.2 %
Auburn 400Auburn, WAAugust 21, 20191  70,345  9,450  5.1 %
Morgan 7
Brooklyn, NYAugust 29, 20192  195,598  80,500  4.0 %
20th StreetOakland, CAAugust 30, 20191  92,884  23,752  4.8 %
SlausonSanta Fe Springs, CAAugust 30, 20192  29,927  5,331  5.2 %
East Marginal 8
Seattle, WANovember 15, 2019—  —  2,850  5.6 %
Whelan 9
East Rutherford, NJDecember 13, 20191  50,305  12,000  5.0 %
917 ValleyPuyallup, WADecember 19, 20191  40,816  6,725  5.4 %
Total/Weighted Average17  699,104  $273,610  4.6 %
1The total aggregate initial investment was approximately $289.6 million, including $6.0 million in closing costs and acquisition costs and $10.0 million in assumed intangible liabilities.
2Stabilized capitalization rates, referred to Financial Statements
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 this Annual Report on Form 10-K.

3Represents an improved land parcel containing approximately 16.8 acres.

4Also includes an improved land parcel containing approximately 2.9 acres.
33

5Represents an improved land parcel containing approximately 2.0 acres.
6Includes approximately 20,000 square feet expiring in 2020.
7Includes approximately 106,000 square feet expiring in 2020.
8Represents an improved land parcel containing approximately 0.9 acres.
9Includes approximately 50,305 square feet expiring in 2020.

Redevelopment Activity

As of December 31, 2019, we have four properties under redevelopment that will contain approximately 0.5 million square feet upon completion with a total expected investment of approximately $120.4 million, including redevelopment costs, capitalized interest and other costs of approximately $52.4 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 Completion Quarter% Pre-leased December 31, 2019
Sodo Row - North$17,000  $10,067  $6,933  5.4 %Q2 2021  — %
Sodo Row - South53,446  44,726  8,720  5.7 %Q2 2021  28.1 %
6th Avenue South15,511  14,976  535  5.1 %Q2 2020  — %
Kent 19234,410  31,484  2,926  5.5 %Q4 2020  — %
Total/Weighted Average$120,367  $101,253  $19,114  5.5 %10.2 %

1Total expected investment for the property includes 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.
2Estimated 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 this Annual Report on Form 10-K.

During 2019, we completed redevelopment of our 1775 NW 70th Avenue property in Miami, Florida. We executed a full-building five-year lease stabilizing the approximately 65,000 square foot redevelopment property. The total investment was approximately $10.0 million. In addition, we completed redevelopment and sold our 10100 NW 25th Street property in Miami, Florida for a sales price of approximately $14.0 million, resulting in a gain of approximately $1.8 million, as discussed below.

Disposition Activity

During the year ended December 31, 2017,2019, we sold four properties for an aggregate sales price of approximately $77.3$48.9 million, resulting in a total gain of approximately $30.6$9.4 million. We sold one property located in the Los Angeles market for a sales price of approximately $25.3$12.4 million, resulting in a gain of approximately $10.1$4.5 million, one redevelopment property located in the Miami market for a sales price of approximately $14.0 million, resulting in a gain of approximately $1.8 million, and threetwo properties located in the Washington, D.C. market for an aggregate sales price of approximately $52.0$22.5 million, resulting in an aggregate gain of approximately $20.5$3.1 million.

The following summarizes the condensed results of operations of the properties sold during the year ended December 31, 20172019 for the years ended December 31, 2019, 2018 and 2017 2016 and 2015 (dollars in(in thousands):

   For the Year Ended December 31, 
       2017           2016           2015     

Rental revenues

  $2,091   $3,732   $3,500 

Tenant expense reimbursements

   653   1,103    1,112 

Property operating expenses

   (778)    (1,216)    (1,309) 

Depreciation and amortization

   (472)    (1,119)    (1,248) 
  

 

 

   

 

 

   

 

 

 

Income from operations

  $1,494   $2,500   $2,055 
  

 

 

   

 

 

   

 

 

 

34

 For the Year Ended December 31,
 201920182017
Rental revenues$1,604  $2,332  $2,964  
Tenant expense reimbursements449  566  645  
Property operating expenses(527) (631) (701) 
Depreciation and amortization(499) (733) (1,203) 
Income from operations$1,027  $1,534  $1,705  
ATM Program

We have anat-the-market equity offering program (the “$200300 Million ATM Program”) pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $200.0$300.0 million ($148.9 million remaining as of December 31, 2019) in amounts and at times as we determine from time to time. Prior to the implementation of the $200$300 Million ATM Program, we had a $150.0$250.0 million ATM program (the “$150250 Million ATM Program”), which was fullysubstantially utilized as of June 30, 2017,May 2019 and a $100.0 million ATM program (the “$100which is no longer active. We intend to use the net proceeds from the offering of the shares under the $300 Million ATM Program”),Program, if any, for general corporate purposes, which was fully utilized asmay include future acquisitions and repayment of December 31, 2016.indebtedness, including borrowings under our revolving credit facility. During 2017,2019, we issued an aggregate of 7,859,9296,064,576 shares of common stock at a weighted average offering price of $32.48$45.85 per share under the $200$300 Million ATM Program and the $150$250 Million ATM Program, resulting in net proceeds of approximately $251.6$274.0 million and paying total compensation to the applicable sales agents of approximately $3.7$4.0 million. As

Long Term Incentive Plan
During 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 December 31, 2017, we had shares of common stock having an aggregate offering priceand settled in shares of upcommon 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, 2019 to $90.1December 31, 2021 is $4.8 million, which will be recognized quarterly over a three-year period. Stock-based compensation expense for the performance share awards for the performance measurement period of January 1, 2019 to December 31, 2021 was $1.6 million for the year ended December 31, 2019.

Equity Incentive Plan
During 2019, our stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”), which replaced 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 $200 Million ATM Program.

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 December 31, 2019, 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 1,460,991 were remaining available for issuance.


Senior Unsecured Notes

On July 14, 2017,Secured Loan

As of December 31, 2019, we issued inhad a private placement $100.0senior secured loan, with an original principle amount of $55.0 million, of senior unsecured notesoutstanding with a seven-yeartwo-year term that bearbears interest at a fixed annual interest rate of 3.75%8.0% and maturematures in July 2024May 2020 (the “July 2024 Senior Unsecured Notes”“Senior Secured Loan”). The Senior Secured Loan is secured by a portfolio of seven improved land parcels primarily located in Newark, New Jersey. One of the properties securing the Senior Secured Loan may be put to us as partial repayment of the Senior Secured Loan. This property may be called by us as partial repayment of the Senior Secured Loan at a previously agreed upon value. In addition, per the terms of the Senior Secured Loan, the borrower may repay the loan at any time with either cash or deed in lieu, with the deed subject to our approval. During the year ended December 31, 2019, we acquired two properties that were securing the Senior Secured Loan for a previously agreed upon aggregate purchase price which approximated their fair value of approximately $39.1 million, which resulted in an approximately $39.1 million reduction in the amount outstanding under the Senior Secured Loan. As of December 31, 2019, there was approximately $15.9 million, net of deferred loan fees of
35

approximately $0.1 million, outstanding on the Senior Secured Loan and approximately $0.3 million of interest receivable outstanding on the Senior Secured Loan.

Senior Unsecured Notes
During 2019, we entered into a note purchase agreement with certain institutional investors in a private placement transaction pursuant to which we issued $100.0 million of ten-year 3.14% senior unsecured notes on December 2, 2019. The proceeds from the issuance were used to redeem all 1,840,000 outstanding shares of 7.75% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”), to repay the previously outstanding borrowings$50.0 million term loan that was to mature in August 2021 and the related unamortized deferred financing costs of approximately $0.2 million were written off to loss on our revolving credit facility and for property acquisitions.

extinguishment of debt.


Share Repurchase Program

On November 1, 2016, our Board of Directors approved an extension of the

We have a share repurchase program authorizing us to repurchase up to 2,000,0003,000,000 shares of our outstanding common stock from time to time through December 31, 2018.2020. Purchases made pursuant to the 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 December 31, 20172019, we have not repurchased any shares of our stock pursuant to ourthe share repurchase authorization.

Index to Financial Statements


Dividend and Distribution Activity

The following table sets forth the cash dividends paid or payable per share during the year ended December 31, 2017:

For the Three

Months Ended

  Security  Dividend
per Share		   Declaration Date  Record Date  Date Paid

March 31, 2017

  Common stock  $0.200000   February 7, 2017  March 28, 2017  April 12, 2017

March 31, 2017

  Preferred stock  $0.484375   February 7, 2017  March 10, 2017  March 31, 2017

June 30, 2017

  Common stock  $0.200000   May 2, 2017  July 7, 2017  July 21, 2017

June 30, 2017

  Preferred stock  $0.484375   May 2, 2017  June 9, 2017  June 30, 2017

September 30, 2017

  Common stock  $0.220000   August 1, 2017  October 6, 2017  October 21, 2017

December 31, 2017

  Common stock  $0.220000   October 31, 2017  December 29, 2017  January 12, 2018

Preferred Stock Redemption

On July 19, 2017, we redeemed all 1,840,000 outstanding shares of our Series A Preferred Stock for cash at a redemption price of $25.00 per share, plus an amount per share of $0.096875 representing all accrued and unpaid dividends per share from July 1, 2017 to, but excluding, July 19, 2017. We recognized a charge of approximately $1.8 million during the year ended December 31, 2017 representing thewrite-off of original issuance costs related to the redemption of the Series A Preferred Stock.

2019:

For the Three
Months Ended
Security
Dividend
per Share
Declaration DateRecord DateDate Paid
March 31, 2019Common stock$0.24 February 5, 2019March 29, 2019April 12, 2019
June 30, 2019Common stock$0.24 April 30, 2019July 5, 2019July 19, 2019
September 30, 2019Common stock$0.27 July 26, 2019October 4, 2019October 18, 2019
December 31, 2019Common stock$0.27 October 29, 2019December 31, 2019January 14, 2020
Recent Developments

Acquisition Activity

Subsequent to December 31, 2017, we acquired one industrial building containing approximately 100,000 square feet for a total purchase price of approximately $17.5 million. The property was acquired from unrelated third parties using cash on hand. The following table sets forth the wholly-owned industrial property we acquired subsequent to December 31, 2017:

Property Name

 Location Acquisition Date Number of
Buildings		  Square Feet  Purchase Price
(in thousands)		  Stabilized
Cap Rate		 

19801 S Vermont Avenue

 Torrance, CA January 31, 2018  1   99,629  $17,500   3.3% 
   

 

 

  

 

 

  

 

 

  

 

 

 

Total/Weighted Average

    1   99,629  $17,500   3.3% 
   

 

 

  

 

 

  

 

 

  

 

 

 

Contractual Commitments

As of February 7, 2018,6, 2020, we have threetwo outstanding contracts with third-party sellers to acquire one industrial property and one improved land parcel and one non-binding letter of intent with a third party buyer to sell three industrial properties as further described under the heading “Contractual Obligations” in this Annual Report on Form10-K. There is no assurance that we will acquire the property and improved land parcel under contract or sell the properties under contractnon-binding letter of intent because the proposed acquisitions and disposition are subject to the completion of satisfactory due diligence and various closing conditions.

As of February 7, 2018, we have two outstanding contractsconditions, and with third-party purchasersrespect to sell two properties consisting of three buildings for an aggregate sales price of approximately $39.3 million (aggregate net book value of approximately $29.4 million). There is no assurance we will sell the properties under contract because the proposed dispositions are subject to the purchaser’s completionnon-binding letter of satisfactory due diligenceintent, our entry into a purchase and various closing conditions.

sale agreement.

Index to Financial Statements


Outlook

Current operating conditions in our six markets are excellent, the best we have seen since our initial public offering.excellent. We believe that on average, the rental rates we are likely to achieve on new or renewed leases for our 20182020 expirations will be above the rates currently being paid for the same space. However, new speculative development continues. This new development will slow potential rent growth from what it would be without such new development. Macroeconomic conditions, while uncertain and impossible to accurately predict, appear favorable to us.

We see attractive acquisition opportunities today; however,opportunities. Nevertheless, our acquisition volume will be dependent on both the quality and pricing of the opportunity set and the price of our stock relative to NAV.our net asset value (NAV). Those conditions, not knowable in advance, will determine our results. We will continue to sell assets and redeploy the capital to enhance NAV or return the capital to shareholders. We entered 20182020 with our balance sheet very well positioned for growth.

Over

Within our six markets we have increasingly focused on urban infill locations. While our net growth will remain limited to a size where we can make directly informed operational decisions, we feel more strongly today than we did ten years ago about the intermediate termlong-term investment merits of our strategy and the next three to four years, although there can be no assurance, we expect to grow our portfolio to approximately $3.0 billion of assets up from approximately $2.4 billion as of December 31, 2017 as measured by our total market capitalization.growth opportunities ahead. We expect, although there can be no assurance, that this will utilize approximately $2.0 billion of equity up from approximately $1.9 billion as of December 31, 2017. We expect this to enhance our operating efficiency, increase our shareholder liquidity and maintain our investment grade credit rating. We remainare mindful, however,always, that it is per share, rather than aggregate, results that matter.

36

We believe in the long-term operating prospects of our functional, extremely infill coastal assets. We believe in sound balance sheet management. We believe in the benefits of our market-leading corporate governance and exceptionally aligned executive management compensation. As a result, we are enthusiastic about the future and our ability to produce superior results for our shareholders over time.

We contribute positively to the environment by owning and operating facilities in infill locations close to population centers thereby minimizing vehicle miles traveled and the concomitant use of fuel and production of airborne particulate matter pollution. Further, we do no ground up greenfield development of properties; sustainability for us means never building on a site that has not previously been commercially developed. During redevelopment of our facilities, we recycle the majority of the building materials from existing buildings and focusesfocus on modern design solutions to reduce our impact on the environment. When releasing vacant space, we seek to reduce our carbon footprint by upgrading existing facilities with energy efficient lighting and heating.

Our outlook is subject to the risks set forth in this Annual Report on Form 10-K, including the risks set form in “Item 1A - Risk Factors”.
Inflation

Although the U.S. economy has been experiencing relatively modest inflation rates recently, and a wide variety of industries and sectors are affected differently by changing commodity prices, inflation has increased construction costs but has not had a significant impact on our 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, approximately 67.0%65.0% of our total rentable square feet expire within five years which enables us to seek to replace existing leases with new leases at the then-existing market rate.


Supplemental Material U.S. Federal Income Tax Considerations

The following discussion updates the disclosures under “Material U.S. Federal Income Tax Considerations” in the prospectus dated February 9, 2018 contained in our Registration Statement on Form S-3 filed with the SEC on February 9, 2018 and contained in the prospectus supplement dated May 17, 2019.

Consolidated Appropriations Act

On March 23, 2018, President Donald J. Trump signed into law the Consolidated Appropriations Act, 2018 (the “CAA”), which amended various provisions of the Code and implicate certain tax-related disclosures contained in the prospectus. As a result, the discussion in the third and fourth paragraphs under “Material U.S. Federal Income Tax Considerations-U.S. Taxation of Non-U.S. Stockholders-Sale of Stock” on pages 33 to 35 of the prospectus is replaced with the following paragraphs:

Additionally, to the extent our stock is held directly (or indirectly through one or more partnerships) by a “qualified shareholder,” it will not be treated as a U.S. real property interest for such qualified shareholder. Therefore, gain treated as gain from the sale or exchange of our stock will not be subject to tax under FIRPTA but would be subject to tax if such gain is treated as effectively connected with the qualified shareholder’s conduct of a U.S. trade or business.Further, to the extent such treatment applies, any distribution to such shareholder will not be treated as gain recognized from the sale or exchange of a U.S. real property interest (and capital gain dividends and non-dividend distributions to such shareholder may be treated as ordinary dividends). For these purposes, a qualified shareholder is generally a non-U.S. stockholder that (i)(A) is eligible for treaty benefits under an income tax treaty with the United States that includes an exchange of information program, and the principal class of interests of which is listed and regularly traded on one or more stock exchanges as defined by the treaty, or (B) is a foreign limited partnership organized in a jurisdiction with an exchange of information agreement with the United States and that has a class of regularly traded limited partnership units (having a value greater than 50% of the value of all partnership units) on the New York Stock Exchange or Nasdaq, (ii) is a “qualified collective investment vehicle” (within the meaning of section 897(k)(3)(B) of the Code) and (iii) maintains records of persons holding 5% or more of the class of interests described in clauses (i)(A) or (i)(B) above. However, in the case of a qualified shareholder having one or more “applicable investors,” the exception described in the first sentence of this paragraph will not apply to the applicable percentage of the qualified shareholder’s stock (where “applicable percentage” generally means the percentage of the value of the interests in the qualified shareholder held by applicable investors after applying certain constructive ownership rules). The applicable percentage of the amount realized by a qualified shareholder on the disposition of our stock or with respect to a distribution from us attributable to gain from the sale or exchange of a U.S. real property interest will be treated as amounts realized from the disposition of U.S. real property interest. Such treatment shall also apply to applicable investors in respect of distributions treated as a sale or exchange of stock with respect to a qualified shareholder. For these purposes, an “applicable investor” is a person (other than a qualified shareholder) who holds an interest in the qualified shareholder and holds more than 10% of our stock applying certain constructive ownership rules.

37

For periods on or after December 18, 2015, for FIRPTA purposes neither a “qualified foreign pension fund” nor a "qualified controller entity" (each as defined below) shall be treated as a non-U.S. stockholder. Accordingly, the U.S. federal income tax treatment of ordinary dividends received by qualified foreign pension funds and qualified controlled entities will be determined without regard to the FIRPTA rules, and their gain from the sale or exchange of our stock, as well as our capital gain dividends and distributions treated as gain from the sale or exchange, will not be subject to U.S. federal income tax unless such gain is treated as effectively connected with such qualified foreign pension fund’s (or such qualified controlled entity’s) conduct of a U.S. trade or business. A “qualified foreign pension fund” is an organization or arrangement (i) created or organized in a foreign country, (ii) established to provide retirement or pension benefits to current or former employees (including self-employed individuals) or their designees by either (A) a foreign country as a result of services rendered by such employees to their employers, or (B) one or more employers in consideration for services rendered by such employees to such employers, (iii) which does not have a single participant or beneficiary that has a right to more than 5% of its assets or income, (iv) which is subject to government regulation and with respect to which annual information about its beneficiaries is provided, or is otherwise made available, to relevant local tax authorities and (v) with respect to which, under its local laws, (A) contributions that would otherwise be subject to tax are deductible or excluded from its gross income or taxed at a reduced rate, or (B) taxation of its investment income is deferred, or such income is excluded from its gross income or taxed at a reduced rate. A “qualified controlled entity” for purposes of the above summary means an entity all the interests of which are held by a qualified foreign pension fund.Alternatively, under proposed Treasury Regulations that taxpayers generally may rely on, but which are subject to change, a “qualified controlled entity” is a trust of corporation organized under the laws of a foreign country all of the interests of which are held by one or more qualified foreign pension funds either directly or indirectly through one or more qualified controlled entities or partnerships.

Finally, the Consolidated Appropriations Act, 2018 clarified that for purposes of determining whether a REIT is a “domestically controlled qualified investment entity” under FIRPTA, the presumption that generally a person holding less than 5% of a REIT’s class of stock that is regularly traded on an established securities market in the United States for five years has been, and will be, treated as a U.S. person applies for testing periods ending on or after December 18, 2015 (e.g., if a testing period ends on June 1, 2018, then the presumption applies for the entire five-year period starting on June 1, 2013).


Recent FATCA Proposed Regulations

On December 13, 2018, the Department of the Treasury and the Internal Revenue Service issued proposed regulations under Sections 1471-1474 of the Code (commonly referred to as FATCA), which proposed regulations eliminate FATCA withholding on gross proceeds and thus implicate certain tax-related disclosures contained in the prospectus. While these regulations have not yet been finalized, taxpayers are generally entitled to rely on the proposed regulations (subject to certain limited exceptions). Accordingly, the discussion under “Material U.S. Federal Income Tax Considerations-Additional U.S. Federal Income Tax Withholding Rules” on pages 36 and 37 of the prospectus is replaced with the following paragraph:

The Foreign Account Tax Compliance Act, or FATCA, imposes withholding taxes on dividends made to “foreign financial institutions” and certain other non-U.S. entities unless (i) the foreign financial institution undertakes certain diligence and reporting obligations or (ii) the foreign non-financial entity either certifies it does not have any substantial United States owners or furnishes identifying information regarding each substantial United States owner. If the payee is a foreign financial institution, it must enter into an agreement with the United States Treasury requiring, among other things, that it undertakes to identify accounts held by certain United States persons or United States-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent them from complying with these reporting and other requirements. Investors in jurisdictions that have entered into “intergovernmental agreements” may, in lieu of the foregoing requirements, be required to report such information to their home jurisdictions. Prospective investors should consult their tax advisors regarding this legislation.

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 91.8%92.6% of our leased space includes fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years.

Index to Financial Statements

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.

38

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 following analysis of our results below for the years ended December 31, 20172019 and 20162018 includes the changes attributable to same store properties. The same store pool for the comparison of the 20172019 and 20162018 fiscal years includes all properties that were owned and in operation as of December 31, 20172019 and since January 1, 20162018 and excludes properties that were either disposed of prior to, held for sale to a third-party or in redevelopment as of December 31, 2017.2019. As of December 31, 2017,2019, the same store pool consisted of 140187 buildings aggregating approximately 10.211.8 million square feet representing approximately 78.3%88.6% of our total square feet owned and threeten improved land parcels consisting of 4.9approximately 47.2 acres. As of December 31, 2017,2019, thenon-same store properties, which we acquired, redeveloped or sold during 20162018 and 2017,2019, or were held for sale (if any) or in redevelopment as of December 31, 2017,2019, consisted of 5633 buildings aggregating approximately 2.81.5 million square feet, and sevennine improved land parcels consisting of 43.0 acres.approximately 30.4 acres and four properties under redevelopment expected to contain approximately 0.5 million square feet upon completion. As of December 31, 20172019 and 2016,2018, our consolidated same store pool occupancy was approximately 97.5%98.4% and 98.9%99.1%, 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.

Index to Financial Statements


39

Comparison of the Year Ended December 31, 20172019 to the Year Ended December 31, 2016:

   For the Year Ended
December 31,		         
   2017   2016   $ Change   % Change 
   (Dollars in thousands)     

Rental revenues

        

Same store

  $83,464   $76,305   $7,159    9.4% 

Non-same store operating properties 1

   19,865    8,713    11,152    128.0% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total rental revenues

   103,329    85,018    18,311    21.5% 

Tenant expense reimbursements

        

Same store

   24,951    21,441    3,510    16.4% 

Non-same store operating properties 1

   4,204    1,959    2,245    114.6% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total tenant expense reimbursements

   29,155    23,400    5,755    24.6% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   132,484    108,418    24,066    22.2% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Property operating expenses

        

Same store

   29,456    27,755    1,701    6.1% 

Non-same store operating properties 1

   6,418    2,570    3,848    149.7% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total property operating expenses

   35,874    30,325    5,549    18.3% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net operating income 2

        

Same store

   78,959    69,991    8,968    12.8% 

Non-same store operating properties 1

   17,651    8,102    9,549    117.9% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net operating income

  $96,610   $78,093   $18,517    23.7% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other costs and expenses

        

Depreciation and amortization

   37,870    34,399    3,471    10.1% 

General and administrative

   19,681    19,319    362   1.9% 

Acquisition costs

   10   3,129    (3,119)    (99.7)% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other costs and expenses

   57,561    56,847    714   1.3% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

        

Interest and other income

   169   24   145   604.2% 

Interest expense, including amortization

   (16,777)    (13,053)    (3,724)    28.5% 

Loss on extinguishment of debt

   —      (239)    239   (100.0)% 

Gain on sales of real estate investments

   30,654    7,140    23,514    329.3% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income and (expenses)

   14,046    (6,128)    20,174    n/a 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $53,095   $15,118   $37,977    251.2% 
  

 

 

   

 

 

   

 

 

   

 

 

 

1Includes 2016 and 2017 acquisitions and dispositions and seven improved land parcels as of December 31, 2017.
2Includes straight-line rents and amortization of lease intangibles. See“Non-GAAP Financial Measures” in this Annual Report on Form10-K for a 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.

2018:

 For the Year Ended December 31,  
 20192018$ Change% Change
 (Dollars in thousands) 
Rental revenues 1
Same store$115,505  $109,096  $6,409  5.9 %
       Non-same store operating properties 2
19,141  9,087  10,054  110.6 %
Total rental revenues134,646  118,183  16,463  13.9 %
Tenant expense reimbursements 1
Same store33,287  31,948  1,339  4.2 %
       Non-same store operating properties 2
3,089  1,526  1,563  102.4 %
Total tenant expense reimbursements36,376  33,474  2,902  8.7 %
Total revenues171,022  151,657  19,365  12.8 %
Property operating expenses
Same store38,302  37,539  763  2.0 %
       Non-same store operating properties 2
5,899  2,449  3,450  140.9 %
Total property operating expenses44,201  39,988  4,213  10.5 %
Net operating income 3
Same store110,490  103,505  6,985  6.7 %
Non-same store operating properties 2
16,331  8,164  8,167  100.0 %
Total net operating income$126,821  $111,669  $15,152  13.6 %
Other costs and expenses
Depreciation and amortization44,015  40,816  3,199  7.8 %
General and administrative23,924  21,503  2,421  11.3 %
Acquisition costs45  124  (79) (63.7)%
Total other costs and expenses67,984  62,443  5,541  8.9 %
Other income (expense)
Interest and other income3,815  3,664  151  4.1 %
Interest expense, including amortization(16,338) (18,211) 1,873  (10.3)%
Loss on extinguishment of debt(189) —  (189) n/a  
Gain on sales of real estate investments9,391  28,610  (19,219) (67.2)%
Total other income and (expenses)(3,321) 14,063  (17,384) n/a  
Net income$55,516  $63,289  $(7,773) (12.3)%
1On January 1, 2019, we adopted the practical expedient under Accounting Standards Update (“ASU”) No. 2018-11, Leases (Topic 842), Targeted Improvements, which 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 principals generally accepted in the United States of America ("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.
2Includes 2018 and 2019 acquisitions and dispositions, nine improved land parcels and four properties under redevelopment as of December 31, 2019.
3Includes straight-line rents and amortization of lease intangibles. See “Non-GAAP Financial Measures” in this Annual Report on Form 10-K for a 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.
40

Revenues.Total revenues increased approximately $24.1$19.4 million for the year ended December 31, 20172019 compared to the prior year due primarily to property acquisitions during 20162018 and 20172019, and increased revenue on new and renewed leases. Cash rents on new and renewed leases totaling approximately 0.2 million square feet commencing during the year ended December 31, 2019 increased approximately 17.3% compared to the same period from the prior year. For the quarter and year ended December 31, 2019, approximately $0.3 million and $2.0 million, respectively, was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants.
Property operating expenses. Total property operating expenses increased approximately $4.2 million during the year ended December 31, 2019 compared to the prior year. The increase in total property operating expenses was due primarily to an increase of approximately $3.5 million attributable to property acquisitions during 2018 and 2019.
Depreciation and amortization. Depreciation and amortization increased approximately $3.2 million during the year ended December 31, 2019 compared to the prior year due to property acquisitions during 2018 and 2019.
General and administrative expenses. General and administrative expenses increased approximately $2.4 million for the year ended December 31, 2019 compared to the prior year due primarily to increased compensation expense, bonus expense, accounting service fees and performance share award expense. The increase 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. Performance share award expense for the year ended December 31, 2019 was approximately $8.0 million as compared to approximately $7.1 million for the prior year. See “Note 11 —Stockholder’s Equity” in our notes to the consolidated financial statements for more information regarding our performance share awards.
Acquisition costs. Acquisition costs decreased by approximately $0.1 million for the year ended December 31, 2019 compared to the year ended December 31, 2018.
Interest and other income. Interest and other income increased approximately $0.2 million for the year ended December 31, 2019 compared to the prior year primarily due to approximately $3.3 million in interest and fees earned on our Senior Secured Loan, which we made in May 2018 and higher cash balances and interest rates during 2019 compared to the prior year.
Interest expense, including amortization. Interest expense decreased approximately $1.9 million for the year ended December 31, 2019 compared to the prior year due primarily to lower average outstanding borrowings on our revolving credit facility and mortgage loans payable and an increase of $0.7 million in capitalized interest compared to the prior year.
Gain on sales of real estate investments. Gain on sales of real estate investments decreased approximately $19.2 million for the year ended December 31, 2019 compared to the prior year period due to property sales. The aggregate sales price for property sales for the year ended December 31, 2019 was approximately $48.9 million as compared to approximately $82.1 million for the prior year.
The following analysis of our results below for the years ended December 31, 2018 and 2017 includes the changes attributable to same store properties. The same store pool for the comparison of the 2018 and 2017 fiscal years includes all properties that were owned and in operation as of December 31, 2018 and since January 1, 2017 and excludes properties that were either disposed of prior to, held for sale to a third-party or in redevelopment as of December 31, 2018. As of December 31, 2018, the same store pool consisted of 156 buildings aggregating approximately 10.4 million square feet representing approximately 81.3% of our total square feet owned and six improved land parcels consisting of approximately 23.0 acres. As of December 31, 2018, the non-same store properties, which we acquired or sold during 2017 and 2018, were held for sale or in redevelopment as of December 31, 2018, consisted of 49 buildings aggregating approximately 2.4 million square feet, ten improved land parcels consisting of approximately 32.2 acres and five properties under redevelopment expected to contain approximately 0.7 million square feet upon completion. As of December 31, 2018 and 2017, our consolidated same store pool occupancy was approximately 99.1% and 98.1%, respectively.
41

Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017:
 For the Year Ended December 31,  
 20182017$ Change% Change
 (Dollars in thousands) 
Rental revenues 1
Same store$94,937  $90,273  $4,664  5.2 %
Non-same store operating properties 2
23,246  13,056  10,190  78.0 %
Total rental revenues118,183  103,329  14,854  14.4 %
Tenant expense reimbursements 1
Same store27,866  26,556  1,310  4.9 %
Non-same store operating properties 2
5,608  2,599  3,009  115.8 %
Total tenant expense reimbursements33,474  29,155  4,319  14.8 %
Total revenues151,657  132,484  19,173  14.5 %
Property operating expenses
Same store31,871  31,795  76  0.2 %
Non-same store operating properties 2
8,117  4,079  4,038  99.0 %
Total property operating expenses39,988  35,874  4,114  11.5 %
Net operating income 3
Same store90,932  85,034  5,898  6.9 %
Non-same store operating properties 2
20,737  11,576  9,161  79.1 %
Total net operating income$111,669  $96,610  $15,059  15.6 %
Other costs and expenses
Depreciation and amortization40,816  37,870  2,946  7.8 %
General and administrative21,503  19,681  1,822  9.3 %
Acquisition costs124  10  114  1,140.0 %
Total other costs and expenses62,443  57,561  4,882  8.5 %
Other income (expense)
Interest and other income3,664  169  3,495  2,068.0 %
Interest expense, including amortization(18,211) (16,777) (1,434) 8.5 %
Loss on extinguishment of debt—  —  —  n/a
Gain on sales of real estate investments28,610  30,654  (2,044) (6.7)%
Total other income and expenses14,063  14,046  17  0.1 %
Net income$63,289  $53,095  $10,194  19.2 %
1On January 1, 2019, we adopted the practical expedient under ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which 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.
2Includes 2017 and 2018 acquisitions and dispositions, ten improved land parcels, five properties under redevelopment and one completed redevelopment property with a gross book value of $29.3 million as of December 31, 2018.
3Includes straight-line rents and amortization of lease intangibles. See “Non-GAAP Financial Measures” in this Annual Report on Form 10-K for a 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.
Revenues. Total revenues increased approximately $19.2 million for the year ended December 31, 2018 compared to the prior year due primarily to property acquisitions during 2017 and 2018 and increased revenue on new and renewed leases and
42

lease termination income of approximately $0.7 million. Same store rental revenues and tenant expense reimbursement revenues increased primarily due to new lease agreements at our V Street, Interstate 130, Hamilton,West 140th, Airgate, Kent 202,Denver Avenue and 180 ManorS. River Drive properties. For the quarter and year ended December 31, 2017,2018, approximately $0.9$0.4 million and $3.1$2.9 million, respectively, was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants.

Index to Financial Statements

Property operating expenses.Total property operating expenses increased approximately $5.5$4.1 million during the year ended December 31, 20172018 compared to the same period from the prior year. The increase in total property operating expenses was due primarily to an increase of approximately $3.8$4.0 million attributable to property acquisitions during 20162017 and 2017, an increase of approximately $1.4 million in same store real estate tax expense primarily due to increased taxes on our V Street, Hamilton, and Pennsy properties, and an increase of approximately $0.2 million in expenses related to Hurricane Irma, of which approximately $0.2 million was incurred at our same store operating properties.

2018.

Depreciation and amortization. Depreciation and amortization increased approximately $3.5$2.9 million during the year ended December 31, 20172018 compared to the same period from the prior year due to property acquisitions during 20162017 and 2017.

2018.

General and administrative expenses.General and administrative expenses increased approximately $0.4$1.8 million for the year ended December 31, 20172018 compared to the same period from the prior year due primarily to increased compensation expense, bonus expense, and accounting service fees, offset by a decrease of approximately $0.6 million inand performance share award expense, which varies quarter to quarter based on our relative share price performance. Performance share award expense for the year ended December 31, 20172018 was approximately $6.7$7.1 million as compared to approximately $7.3$6.7 million for the prior year period.year. See “Note 10 —Stockholder’s11 - Stockholder’s Equity” in our notes to the consolidated financial statements for more information regarding our performance share awards.


Acquisition costs.Acquisition costs decreasedincreased by approximately $3.1 million for the year ended December 31, 2017 from the prior year due to the adoption of ASU2017-1 effective January 1, 2017 under which our real estate property acquisitions are accounted for as asset acquisitions. Acquisition costs were capitalized to individual assets and liabilities acquired on a relative fair value basis for the year ended December 31, 2017 as compared to expensing as incurred in the prior year period.

Interest and other income. Interest and other income increased approximately $0.1 million for the year ended December 31, 20172018 compared to the same period from the prior year.

year ended December 31, 2017.


Interest expense, including amortization.and other income.Interest expenseand other income increased approximately $3.7$3.5 million for the year ended December 31, 20172018 compared to the prior year primarily due to approximately $3.3 million in interest and fees earned on our Senior Secured Loan, which we made in May 2018.

Interest expense, including amortization. Interest expense increased approximately $1.4 million for the year ended December 31, 2018 compared to the prior year due primarily to an increase in our average outstanding borrowings.

borrowings on our revolving credit facility and senior unsecured debt and higher interest rates, partially offset by an increase of $2.5 million in capitalized interest compared to the prior year.


Gain on sales of real estate investments. Gain on salesales of real estate investments increaseddecreased approximately $23.5$2.0 million for the year ended December 31, 20172018 compared to the prior year period due to property sales. The aggregate sales price for property sales for the year ended December 31, 20172018 was approximately $77.3$82.1 million as compared to approximately $22.5$77.3 million for the prior year period.

The following analysis of our results below for the years ended December 31, 2016 and 2015 includes the changes attributable to same store properties. The same store pool for the comparison of the 2016 and 2015 fiscal years includes all properties that were owned and in operation as of December 31, 2016 and since January 1, 2015 and excludes properties that were either disposed of prior to, held for sale to a third-party or in redevelopment as of December 31, 2016. As of December 31, 2016, the same store pool consisted of 116 buildings aggregating approximately 8.6 million square feet representing approximately 71.9% of our total square feet owned and three improved land parcels consisting of 4.9 acres. As of December 31, 2016, thenon-same store properties, which we acquired or sold during 2015 and 2016, were held for sale or in redevelopment as of December 31, 2016, consisted of 50 buildings aggregating approximately 3.4 million square feet and two improved land parcels consisting of 17.9 acres. As of December 31, 2016 and 2015, our consolidated same store pool occupancy was approximately 99.0% and 92.6%, respectively.

year.

Index to Financial Statements

Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015:

   For the Year Ended
December 31,		         
   2016   2015   $ Change   % Change 
   (Dollars in thousands)     

Rental revenues

        

Same store

  $64,820   $62,930   $1,890    3.0% 

Non-same store operating properties 1

   20,198    12,969    7,229    55.7% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total rental revenues

   85,018    75,899    9,119    12.0% 

Tenant expense reimbursements

        

Same store

   18,008    16,990    1,018    6.0% 

Non-same store operating properties 1

   5,392    3,006    2,386    79.4% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total tenant expense reimbursements

   23,400    19,996    3,404    17.0% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   108,418    95,895    12,523    13.1% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Property operating expenses

        

Same store

   23,195    23,066    129   0.6% 

Non-same store operating properties 1

   7,130    3,589    3,541    98.7% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total property operating expenses

   30,325    26,655    3,670    13.8% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net operating income 2

        

Same store

   59,633    56,854    2,779    4.9% 

Non-same store operating properties 1

   18,460    12,386    6,074    49.0% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net operating income

  $78,093   $69,240   $8,853    12.8% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other costs and expenses

        

Depreciation and amortization

   34,399    36,026    (1,627)    (4.5)% 

General and administrative

   19,319    14,846    4,473    30.1% 

Acquisition costs

   3,129    4,713    (1,584)    (33.6)% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other costs and expenses

   56,847    55,585    1,262    2.3% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

        

Interest and other income

   24   18   6   33.3% 

Interest expense, including amortization

   (13,053)    (9,639)    (3,414)    35.4% 

Loss on extinguishment of debt

   (239)    —      (239)    n/a 

Gain on sales of real estate investments

   7,140    10,567    (3,427)    (32.4)% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income and expenses

   (6,128)    946   (7,074)    n/a 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $15,118   $14,601   $517    3.5% 
  

 

 

   

 

 

   

 

 

   

 

 

 

1Includes 2015 and 2016 acquisitions and dispositions and two improved land parcels as of December 31, 2016.
2Includes straight-line rents and amortization of lease intangibles. See“Non-GAAP Financial Measures” in this Annual Report on Form10-K for a 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.

Revenues.Total revenues increased approximately $12.5 million for the year ended December 31, 2016 compared to the prior year due primarily to property acquisitions during 2015 and 2016 and increased average occupancy in the same store pool portfolio. The increase in same store revenues is primarily related to same store consolidated occupancy at year end increasing to 99.0% as of December 31, 2016 as compared to 92.6% as of December 31, 2015. For the quarter and year ended December 31, 2016, approximately $1.4 million and $3.9 million, respectively, was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants.

Index to Financial Statements

Property operating expenses.Total property operating expenses increased approximately $3.7 million during the year ended December 31, 2016 compared to the same period from the prior year. The increase in total property operating expenses was due primarily to an increase of approximately $3.5 million attributable to property acquisitions during 2015 and 2016.

Depreciation and amortization. Depreciation and amortization decreased approximately $1.6 million during the year ended December 31, 2016 compared to the same period from the prior year due to additional depreciation expense of approximately $4.0 million incurred during the year ended December 31, 2015 related to the redevelopment of our South Main Street property as a result of the reduction of the useful lives of the original buildings, offset by property acquisitions during 2015 and 2016.

General and administrative expenses.General and administrative expenses increased approximately $4.5 million for the year ended December 31, 2016 compared to the same period from the prior year due primarily to an increase of approximately $2.8 million in performance share award expense, which varies quarter to quarter based on our relative share price performance. Performance share award expense for the year ended December 31, 2016 was approximately $7.3 million as compared to approximately $4.5 million for the prior year period as a result of our total shareholder return outperforming the MSCI U.S. REIT Index (RMS) and the FTSE NAREIT Equity Industrial Index over the prior three year period.

Acquisition costs.Acquisition costs decreased by approximately $1.6 million for the year ended December 31, 2016 from the prior year due to a lower volume of property acquisitions during the year ended December 31, 2016 as compared to the prior year.

Interest and other income. Interest and other income increased approximately $6,000 for the year ended December 31, 2016 compared to the same period from the prior year.

Interest expense, including amortization.Interest expense increased approximately $3.4 million for the year ended December 31, 2016 compared to the prior year due primarily to an increase in our average outstanding borrowings.

Gain on sales of real estate investments. Gain on sale of real estate investments decreased approximately $3.4 million for the year ended December 31, 2016 compared to the prior year period due to property sales. The aggregate sales price for property sales for the year ended December 31, 2016 was approximately $22.5 million as compared to approximately $24.6 million for the prior year period.

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 adebt-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 (5-7 years), positioning us tore-price parts of our capital structure as our rental rates change with market conditions.

Index to Financial Statements

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 additional perpetual preferred stock. Fitch Ratings assigned us an issuer rating ofBBB- 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,

43

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 higherloan-to-value.

loan-to-value ratio.

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 currentat-the-market common stock offering program as of December 31, 2017:

ATM Stock Offering Program

 Date Implemented  Maximum Aggregate
Offering Price
(in thousands)		  Aggregate Common Stock
Available as of December 31,
2017 (in thousands)		 

$200 Million ATM Program

  August 4, 2017  $200,000  $90,093 

2019:

ATM Stock Offering ProgramDate Implemented
Maximum Aggregate
Offering Price
(in thousands)
Aggregate Common Stock Available as of December 31, 2019 (in thousands)
 $300 Million ATM ProgramMay 17, 2019$300,000  $148,857  
The table below sets forth the activity under theour at-the-market common stock offering programs during the years ended December 31, 20172019 and 2016,2018, respectively (in thousands, except share and price per share data):

For the Year Ended

  Shares Sold   Weighted Average
Price Per Share		   Net Proceeds
(in thousands)		   Sales Commissions
(in thousands)		 

December 31, 2017

   7,859,929   $32.48   $251,585   $3,709 

December 31, 2016

   3,991,830   $25.39   $99,866   $1,504 

On July 14, 2017,

For the Year EndedShares Sold
Weighted Average
Price Per Share
Net ProceedsSales Commissions
December 31, 20196,064,576  $45.85  $274,026  $4,032  
December 31, 20185,492,707  $38.04  $205,919  $3,030  

As of December 31, 2019, we issued inhad a private placement $100.0 million of senior unsecured notesSenior Secured Loan outstanding with a seven-yeartwo-year term that bearbears interest at a fixed annual interest rate of 3.75%8.0% and maturematures in July 2024. NetMay 2020. The Senior Secured Loan is secured by a portfolio of seven improved land parcels primarily located in Newark, New Jersey. One of the properties securing the Senior Secured Loan may be put to us as partial repayment of the Senior Secured Loan. This property may be called by us as partial repayment of the Senior Secured Loan at a previously agreed upon value. In addition, per the terms of the Senior Secured Loan, the borrower may repay the loan at any time with either cash or deed in lieu, with the deed subject to our approval. During the year ended December 31, 2019, we acquired two properties that were securing the Senior Secured Loan for a previously agreed upon aggregate purchase price which approximated their fair value of approximately $39.1 million, which resulted in an approximately $39.1 million reduction in the amount outstanding under the Senior Secured Loan. As of December 31, 2019 and 2018, there was approximately $15.9 million and $54.5 million, respectively, net of deferred loan fees of approximately $0.1 million and $0.5 million, respectively, outstanding on the Senior Secured Loan and approximately $0.3 million and $0.4 million, respectively, of interest receivable outstanding on the Senior Secured Loan.
On September 12, 2019, we entered into a note purchase agreement with certain institutional investors in a private placement transaction pursuant to which we issued $100.0 million of ten-year 3.14% senior unsecured notes on December 2, 2019. The proceeds from the issuance were used to redeem all 1,840,000 outstanding shares of Series A Preferred Stock, to repay the previously outstanding borrowings$50.0 million term loan that was to mature in August 2021 and the related unamortized deferred financing costs of approximately $0.2 million were written off to loss on our revolving credit facility, and for property acquisitions.extinguishment of debt. As of December 31, 2017,2019, we also 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, and $50.0 million of senior unsecured notes that mature in October 2027 and $100.0 million of senior unsecured notes that mature in December 2029 (collectively, with the July 2024 Senior Unsecured Notes, the “Senior Unsecured Notes”), and a credit facility (the “Facility”), which consists of a $200.0$250.0 million unsecured revolving credit facility that matures in August 2020, a $50.0 million term loan that matures in August 2021October 2022 and a $100.0 million term loan that matures in January 2022. As of December 31, 20172019 and December 31, 2016,2018, there was $0 and $51.5$19.0 million, respectively, of borrowings outstanding on our revolving credit facility and $150.0$100.0 million and $150.0 million, respectively, of borrowings outstanding on our term loans. We have threetwo interest rate caps to hedge the variable cash flows associated with our existing $150.0$100.0 million of variable-rate
44

term loans.loan. See “Note8-Derivative 9-Derivative Financial Instruments” in our notes to consolidated financial statements for more information regarding our interest rate caps.

Index to Financial Statements

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 $150.0 million term loans and the $200.0$250.0 million revolving credit facility and the $100.0 million term loan maturing in January 2022 or (ii) 60.0% of the value of the unencumbered properties. Interest on the Facility, including the term loans,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, orthirty-day LIBOR plus the applicable LIBOR margin for LIBOR rate loans under the Facility plus 1.25%. The applicable LIBOR margin will range from 1.35%1.05% to 1.90% (1.35%1.50% (1.05% as of December 31, 2017)2019) for the revolving credit facility and 1.30%1.20% to 1.85% (1.30%1.70% (1.20% as of December 31, 2017)2019) for the $50.0 million term loan that matures in August 2021 and 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 unused facility fee in an amount equalranging from 0.15% to 0.20% or 0.25%0.30% depending on the unused portionratio of our outstanding consolidated indebtedness to the Facility.

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 andto-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 December 31, 20172019 and December 31, 2016.

2018.

As of December 31, 20172019 and 2016,2018, we had outstanding mortgage loans payable, net of deferred financing costs, of approximately $64.8$44.3 million and $66.6$45.8 million, respectively, and held cash and cash equivalents totaling approximately $35.7$110.1 million and $14.2$31.0 million, respectively.

Subsequent to December 31, 2019, we used a portion of the proceeds from our $100.0 million ten-year 3.14% senior unsecured note to repay a mortgage loan payable of $32.7 million.

The following table summarizestables summarize our debt maturities and principal payments as of and for the year ended December 31, 2017,2019, and market capitalization, capitalization ratios, Adjusted EBITDA, interest coverage, fixed charge coverage and debt ratios as of and for the years ended December 31, 20172019 and 20162018 (dollars in thousands – except per share data):

   Credit
Facility		   Term
Loans		  Senior
Unsecured
Notes		  Mortgage
Loans
Payable		  Total Debt 

2018

  $—     $—    $—    $1,910  $1,910 

2019

   —      —     —     18,805   18,805 

2020

   —      —     —     33,077   33,077 

2021

   —      50,000   —     11,271   61,271 

2022

   —      100,000   50,000   —     150,000 

Thereafter

   —      —     200,000   —     200,000 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Subtotal

   —      150,000   250,000   65,063   465,063 

Unamortized net premiums

   —      —     —     —     —   
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total Debt

   —      150,000   250,000   65,063   465,063 

Deferred financing costs, net

   —      (1,103)   (2,045)   (232)   (3,380) 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total Debt, net

  $—     $148,897  $247,955  $64,831  $461,683 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Weighted Average Interest Rate

   n/a    2.5%   4.1%   4.0%   3.6% 

Index
Credit
Facility
Term
Loans
Senior
Unsecured
Notes
Mortgage
Loans
Payable
Total Debt
2020$—  $—  $—  $33,077  $33,077  
2021—  —  —  11,271  11,271  
2022—  100,000  50,000  —  150,000  
2023—  —  —  
2024—  —  100,000  —  100,000  
Thereafter—  —  200,000  —  200,000  
Total Debt—  100,000  350,000  44,348  494,348  
Deferred financing costs, net—  (417) (2,326) (30) (2,773) 
Total Debt, net$—  $99,583  $347,674  $44,318  $491,575  
Weighted average interest raten/a  3.0 %3.8 %4.1 %3.7 %

45

As of December 31, 2019As of December 31, 2018
Total Debt, net$491,575  $462,097  
Equity
Common Stock
Shares Outstanding 1
67,252,787  61,013,711  
Market Price 2
$54.14  $35.17  
Market Value3,641,066  2,145,852  
Total Market Capitalization$4,132,641  $2,607,949  
Total Debt-to-Total Investments in Properties 3
22.8 %25.2 %
Total Debt-to-Total Investments in Properties and Senior Secured Loan 4
22.7 %24.5 %
Total Debt-to-Total Market Capitalization 5
11.9 %17.8 %
Floating Rate Debt as a % of Total Debt 6
20.3 %36.4 %
Unhedged Floating Rate Debt as a % of Total Debt 7
— %4.1 %
Mortgage Loans Payable as a % of Total Debt 8
9.0 %9.9 %
Mortgage Loans Payable as a % of Total Investments in Properties 9
2.1 %2.5 %
Adjusted EBITDA 10
$117,356  $103,100  
Interest Coverage 11
7.2x5.7x
Fixed Charge Coverage 12
6.0x5.0x
Total Debt-to-Adjusted EBITDA 13
4.1x4.2x
Weighted Average Maturity of Total Debt (years)5.1  4.6  

1Includes 426,770 and 383,930 shares of unvested restricted stock outstanding as of December 31, 2019 and 2018, respectively.
2Closing price of our shares of common stock on the New York Stock Exchange on December 31, 2019 and 2018, respectively, in dollars per share.
3Total 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 as of December 31, 2019 and 2018, respectively.
4Total 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 and total Senior Secured Loan, net of deferred loan fees of approximately $0.1 million and $0.5 million, as of December 31, 2019 and 2018, respectively.
5Total 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 December 31, 2019 and 2018, respectively.
6Floating 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 our existing $100.0 million and $150.0 million of variable-rate term loan borrowings with interest rate caps of 4.0% plus 1.20% to 1.70%, depending on leverage as of December 31, 2019 and 2018, respectively. See “Note 9 – Derivative Financial Statements
   As of
December 31,
2017		  As of
December 31,
2016		 

Total Debt, net

  $461,683  $415,327 

Equity

   

Common Stock

   

Shares Outstanding 1

   55,368,737   47,414,365 

Market Price 2

  $35.06  $28.49 
  

 

 

  

 

 

 

Market Value

   1,941,228   1,350,835 

Preferred Stock ($25.00 per share liquidation preference)

   —     46,000 
  

 

 

  

 

 

 

Total Equity

   1,941,228   1,396,835 
  

 

 

  

 

 

 

Total Market Capitalization

  $2,402,911  $1,812,162 
  

 

 

  

 

 

 

TotalDebt-to-Total Investments in Properties 3

   28.2%   30.9% 

TotalDebt-to-Total Market Capitalization 4

   19.2%   22.9% 

Total Debt and PreferredStock-to-Total Market Capitalization 5

   19.2%   25.5% 

Floating Rate Debt as a % of Total Debt 6

   32.3%   48.2% 

Unhedged Floating Rate Debt as a % of Total Debt 7

   0.0%   12.4% 

Mortgage Loans Payable as a % of Total Debt 8

   14.0%   16.0% 

Mortgage Loans Payable as a % of Total Investments in Properties 9

   4.0%   5.0% 

Adjusted EBITDA 10

  $85,830  $68,242 

Interest Coverage 11

   5.1x   5.2x 

Fixed Charge Coverage 12

   4.6x   4.0x 

TotalDebt-to-Adjusted EBITDA13

   5.3x   5.4x 

Total Debt and PreferredStock-to-Adjusted EBITDA 14

   5.3x   6.0x 

Weighted Average Maturity of Total Debt (years)

   5.4   5.8 

1Includes 357,183 and 395,281 shares of unvested restricted stock outstanding as of December 31, 2017 and 2016, respectively.
2Closing price of our shares of common stock on the New York Stock Exchange on December 31, 2017 and 2016, respectively, in dollars per share.
3Totaldebt-to-total investments in properties is calculated as total debt, including premiums and net of deferred financing costs, divided by total investments in properties.
4Totaldebt-to-total market capitalization is calculated as total debt, including premiums and net of deferred financing costs, divided by total market capitalization as of December 31, 2017 and 2016, respectively.
5Total debt and preferredstock-to-total market capitalization is calculated as total debt, including premiums and net of deferred financing costs, plus preferred stock at liquidation preference, if any, divided by total market capitalization as of December 31, 2017 and 2016, respectively. We redeemed all of our outstanding shares of Series A Preferred Stock in July 2017.
6Floating 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 our existing $150.0 million of variable-rate term loan borrowings with interest rate caps of 4.0% plus 1.30% to 1.85%, depending on leverage as of December 31, 2017 and 2016. See “Note 8 – Derivative Financial Instruments” in our notes to consolidated financial statements for more information regarding our interest rate caps.
7Unhedged 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 existing $150.0 million of variable-rate term loan borrowings with interest rate caps of 4.0% plus 1.30% to 1.85%, depending on leverage as of December 31, 2017 and 2016. See “Note 8 – Derivative Financial Instruments” in our notes to consolidated financial statements for more information regarding our interest rate caps.

Index to consolidated financial statements for more information regarding our interest rate caps.
7Unhedged 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, net of deferred financing costs. Hedged debt includes our existing $100.0 million and $150.0 million of variable-rate term loan borrowings with interest rate caps of 4.0% plus 1.20% to 1.70%, depending on leverage as of December 31, 2019 and 2018, respectively. See “Note 9 – Derivative Financial Statements
8Mortgage 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.
9Mortgage loans payable as a percentage of investments in properties is calculated as mortgage loans payable, including premiums and net of deferred financing costs, divided by total investments in properties.
10Earnings before interest, taxes, gains (losses) from sales of property, depreciation and amortization, acquisition costs and stock-based compensation (“Adjusted EBITDA”) for the years ended December 31, 2017 and 2016, respectively. See“Non-GAAP Financial Measures” in this Annual Report on Form10-K 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.
11Interest coverage is calculated as Adjusted EBITDA divided by interest expense, including amortization. See“Non-GAAP Financial Measures” in this Annual Report on Form10-K 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.
12Fixed charge coverage is calculated as Adjusted EBITDA divided by interest expense, including amortization plus preferred stock dividends, if any. See“Non-GAAP Financial Measures” in this Annual Report on Form10-K 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.
13Totaldebt-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 Annual Report on Form10-K 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.
14Total debt and preferredstock-to-Adjusted EBITDA is calculated as total debt, including premiums and net of deferred financing costs, plus preferred stock, if any, divided by annualized Adjusted EBITDA. We redeemed all of our outstanding shares of Series A Preferred Stock in July 2017. See“Non-GAAP Financial Measures” in this Annual Report on Form10-K 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.

IndexInstruments” in our notes to consolidated financial statements for more information regarding our interest rate caps.
8Mortgage 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, net of deferred financing costs.
9Mortgage 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.
10Earnings before interest, taxes, gains (losses) from sales of property, depreciation and amortization, acquisition costs and stock-based compensation (“Adjusted EBITDA”) for the years ended December 31, 2019 and 2018, respectively. See “Non-GAAP Financial Statements
Measures” in this Annual Report on Form 10-K for a definition and reconciliation of

46

Adjusted EBITDA from net income and a discussion of why we believe Adjusted EBITDA is a useful supplemental measure of our operating performance.
11Interest coverage is calculated as Adjusted EBITDA divided by interest expense, including amortization. See “Non-GAAP Financial Measures” in this Annual Report on Form 10-K 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.
12Fixed charge coverage is calculated as Adjusted EBITDA divided by interest expense, including amortization, capitalized interest plus preferred stock dividends, if any. See “Non-GAAP Financial Measures” in this Annual Report on Form 10-K 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.
13Total 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 Annual Report on Form 10-K 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 years ended December 31, 20172019 and 2016:

For the Three

Months Ended

 Security Dividend
per Share		  Declaration Date Record Date Date Paid
March 31, 2017 Common stock $0.200000  February 7, 2017 March 28, 2017 April 12, 2017
March 31, 2017 Preferred stock $0.484375  February 7, 2017 March 10, 2017 March 31, 2017
June 30, 2017 Common stock $0.200000  May 2, 2017 July 7, 2017 July 21, 2017
June 30, 2017 Preferred stock $0.484375  May 2, 2017 June 9, 2017 June 30, 2017
September 30, 2017 Common stock $0.220000  August 1, 2017 October 6, 2017 October 21, 2017
December 31, 2017 Common stock $0.220000  October 31, 2017 December 29, 2017 January 12, 2018

For the Three

Months Ended

 Security Dividend
per Share		  Declaration Date Record Date Date Paid
March 31, 2016 Common stock $0.180000  February 9, 2016 March 28, 2016 April 12, 2016
March 31, 2016 Preferred stock $0.484375  February 9, 2016 March 10, 2016 March 31, 2016
June 30, 2016 Common stock $0.180000  May 3, 2016 July 7, 2016 July 21, 2016
June 30, 2016 Preferred stock $0.484375  May 3, 2016 June 10, 2016 June 30, 2016
September 30, 2016 Common stock $0.200000  July 26, 2016 October 7, 2016 October 21, 2016
September 30, 2016 Preferred stock $0.484375  July 26, 2016 September 9, 2016 September 30, 2016
December 31, 2016 Common stock $0.200000  November 1, 2016 December 30, 2016 January 13, 2017
December 31, 2016 Preferred stock $0.484375  November 1, 2016 December 9, 2016 December 30, 2016

On July 19, 2017, we redeemed all 1,840,000 outstanding shares of our Series A Preferred Stock for cash at a redemption price of $25.00 per share, plus an amount per share of $0.096875 representing all accrued and unpaid dividends per share from July 1, 2017 to, but excluding, July 19, 2017.

2018:

For the Three
Months Ended
Security
Dividend
per Share
Declaration DateRecord DateDate Paid
March 31, 2019Common stock$0.24 February 5, 2019March 29, 2019April 12, 2019
June 30, 2019Common stock$0.24 April 30, 2019July 5, 2019July 19, 2019
September 30, 2019Common stock$0.27 July 26, 2019October 4, 2019October 18, 2019
December 31, 2019Common stock$0.27 October 29, 2019December 31, 2019January 14, 2020

For the Three
Months Ended
Security
Dividend
per Share
Declaration DateRecord DateDate Paid
March 31, 2018Common stock$0.22 February 6, 2018March 28, 2018April 12, 2018
June 30, 2018Common stock$0.22 May 1, 2018July 6, 2018July 20, 2018
September 30, 2018Common stock$0.24 August 1, 2018October 5, 2018October 19, 2018
December 31, 2018Common stock$0.24 October 31, 2018December 18, 2018January 11, 2019

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 and preferred stock dividends.

Cash From Operating Activities.Net cash provided by operating activities totaled approximately $69.5$94.7 million for the year ended December 31, 20172019 compared to approximately $49.2$77.6 million for the year ended December 31, 2016.2018. This increase in cash provided by operating activities is primarily attributable to additional cash flows generated from the properties acquired during 20172019 and 2016.

2018 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 $249.1$251.5 million and $149.6$235.0 million, respectively, for the years ended December 31, 20172019 and 2016,2018, which consists primarily of cash paid for property acquisitions of $297.1$238.7 million and $128.5$221.8 million, respectively, net cash paid for our Senior Secured Loan of approximately $0 and $54.1 million, respectively, and additions to capital improvements of approximately $27.4$60.0 million and $42.5$38.6 million, respectively, offset by net proceeds from sales of real estate investments of approximately $75.4$47.1 million and $21.4$79.6 million, respectively, for the years ended December 31, 20172019 and 2016.

2018.

Cash From Financing Activities. Net cash provided by financing activities was approximately $203.9$235.1 million for the year ended December 31, 2017,2019, which consists primarily of approximately $251.5$274.0 million in net common stock issuance proceeds and borrowings of $100.0 million in borrowings onconnection with our issuance of senior unsecured notes, offset by approximately $43.9$63.6 million in equity dividend payments, the repurchase of approximately $46.0$50.0 million in preferred stock,payments on our term loan that was to mature in August 2021 and approximately $19.0 million in net payments on our revolving credit facility of approximately $51.5 million.facility. Net cash provided by financing activities was
47

approximately $93.8$149.0 million for the year ended December 31, 2016,2018, which

Index to Financial Statements

consists primarily of approximately $99.9$205.9 million in net common stock issuance proceeds and net$19.0 million in borrowings on theour revolving credit facility, of approximately $51.5 million, offset by approximately $36.7$51.4 million in equity dividend payments and payments onapproximately $19.2 million in mortgage loans payable of approximately $16.9 million.

loan payments.

Critical Accounting Policies

Below is a discussion of the accounting policies that we believe are critical. We consider these policies critical because they require estimates about matters that are inherently uncertain, involve various assumptions and require significant management judgment, and because they are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Applying different estimates or assumptions may result in materially different amounts reported in our financial statements.

Capitalization of Costs. We capitalize costs directly related to the redevelopment, renovation and expansion of our investment in real estate. Costs associated with such projects are capitalized as incurred. If the project is abandoned, these costs are expensed during the period in which the redevelopment or expansion project is abandoned. Costs considered for capitalization include, but are not limited to, construction costs, interest, real estate taxes and insurance, if appropriate. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress. In the event that the activities to ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. Costs incurred for maintaining and repairing properties, which do not extend their useful lives, are expensed as incurred.

Interest is capitalized based on actual capital expenditures from the period when redevelopment, renovation or expansion commences until the asset is ready for its intended use, at the weighted average borrowing rate during the period.

Property Acquisitions.Effective January 1, 2017, we adopted Accounting Standards Update (“ASU”)2017-1,ASU 2017-01, Business Combinations (Topic 805):Clarifying the Definition of a Business which requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not considered a business. To be a business, the set of acquired activities and assets must include inputs and one or more substantive processes that together contribute to the ability to create outputs. We have determined that our real estate property acquisitions will generally be accounted for as asset acquisitions under the clarified definition. Prior to January 1, 2017, we generally accounted for property acquisitions as business combinations, in accordance with Accounting Standards Codification (“ASC”) 805,Business Combinations. Upon acquisition of a property we estimate the fair value of acquired tangible assets (consisting generally of land, buildings and improvements) and intangible assets and liabilities (consisting generally of the above and below-market leases and the origination value of allin-place leases). We determine fair values using Level 3 inputs such as replacement cost, estimated cash flow projections and other valuation techniques and applying appropriate discount and capitalization rates based on available market information. Mortgage loans assumed in connection with acquisitions are recorded at their fair value using current market interest rates for similar debt at the date of acquisition. Acquisition-related costs associated with asset acquisitions are capitalized to individual tangible and intangible assets and liabilities assumed on a relative fair value basis and acquisition-related costs associated with business combinations are expensed as incurred.

The fair value of the tangible assets is determined by valuing the property as if it were vacant. Land values are derived from current comparative sales values, when available, or management’s estimates of the fair value based on market conditions and the experience of our management team. Building and improvement values are calculated as replacement cost less depreciation, or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods. The fair value of the above and below-market leases is based

Index to Financial Statements

on the present value of the difference between the contractual amounts to be received pursuant to the acquired leases (using a discount rate that reflects the risks associated with the acquired leases) and our estimate of the market lease rates measured over a period equal to the remaining term of the leases plus the term of any below-market fixed rate renewal options. The above and below-market lease values are amortized to rental revenues over the remaining initial term plus the term of any below-market fixed rate renewal options that are considered bargain renewal options of the respective leases. The origination value ofin-place leases is based on costs to execute similar leases, including commissions and other related costs. The origination value ofin-place leases also includes real estate taxes, insurance and an estimate of lost rental revenue at market rates during the estimated time required to lease up the property from vacant to the occupancy level at the date of acquisition.

Impairment. Carrying values for financial reporting purposes are reviewed for impairment on aproperty-by-property basis whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable. Examples of such events or changes in circumstances may include classifying an asset to be held for sale, changing the intended
48

hold period or when an asset remains vacant significantly longer than expected. The intended use of an asset either held for sale or held for use can significantly impact how impairment is measured. If an asset is intended to be held for the long-term, the recoverability is based on the undiscounted future cash flows. If the asset carrying value is not supported on an undiscounted future cash flow basis, then the asset carrying value is measured against the lower of cost or the present value of expected cash flows over the expected hold period. An impairment charge to earnings is recognized for the excess of the asset’s carrying value over the lower of cost or the present values of expected cash flows over the expected hold period. If an asset is intended to be sold, impairment is determined using the estimated fair value less costs to sell. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions, among other things, regarding current and future economic and market conditions and the availability of capital. We determine the estimated fair values based on its assumptions regarding rental rates,lease-up and holding periods, as well as sales prices. When available, current market information is used to determine capitalization and rental growth rates. If available, current comparative sales values may also be used to establish fair value. When market information is not readily available, the inputs are based on our understanding of market conditions and the experience of our management team. Actual results could differ significantly from our estimates. The discount rates used in the fair value estimates represent a rate commensurate with the indicated holding period with a premium layered on for risk.

Discontinued Operations. We consider a property to be classified as discontinued operations when it meets the criteria established under Accounting Standards Update (“ASU”)2014-08. Disposals that represent a strategic shift that should have or will have a major effect on our operations and financial results qualify as discontinued operations.

Revenue Recognition.We record rental revenue from operating leases on a straight-line basis over the term of the leases and maintain an allowance for estimated losses that may result from the inability of our tenants to make required payments. If tenants fail to make contractual lease payments that are greater than our allowance for doubtful accounts, security deposits and letters of credit, then we may have to recognize additional doubtful account charges in future periods. We monitor the liquidity and creditworthiness of our tenants on anon-going basis by reviewing their financial condition periodically as appropriate. Each period we review our outstanding accounts receivable, including straight-line rents, for doubtful accounts and provide allowances as needed. We also record lease termination fees when a tenant has executed a definitive termination agreement with us and the payment of the termination fee is not subject to any conditions that must be met or waived before the fee is due to us. If a tenant remains in the leased space following the execution of a definitive termination agreement, the applicable termination will be deferred and recognized over the term of such tenant’s occupancy.

Tenant expense reimbursement income includes payments and amounts due from tenants pursuant to their leases for real estate taxes, insurance and other recoverable property operating expenses and is recognized as revenues during the same period the related expenses are incurred.

Index
Effective January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of our adoption.  Under the modified retrospective approach, an entity may also elect to Financial Statements
apply this standard to either (i) all contracts as of January 1, 2018 or (ii) only to contracts that were not completed as of January 1, 2018.  A completed contract is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP that was in effect before the date of initial application. We elected to apply this standard only to contracts that were not completed as of January 1, 2018.  Based on our evaluation of contracts within the scope of ASU No. 2014-09, the guidance impacts revenue generated by sales of real estate, which is evaluated in conjunction with ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (see below).

Effective January 1, 2018, we adopted the guidance of ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business. Generally, our sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610-20. ASC 610-20 refers to the revenue recognition principles under ASU 2014-09, Revenue from Contracts with Customers (see above). Under ASC 610-20, if we determine that we do not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, we will derecognize the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer.

Income Taxes.We elected to be taxed as a REIT under the Code and operate as such beginning with our taxable year ended December 31, 2010. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to our stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net
49

income and net cash available for distribution to stockholders. However, we believe we are organized and operate in such a manner as to qualify for treatment as a REIT.

Stock-Based Compensation and Other Long-Term Incentive Compensation. We follow the provisions of ASC 718,Compensation-Stock Compensation, to account for our stock-based compensation plan, which requires that the compensation cost relating to stock-based payment transactions be recognized in the financial statements and that the cost be measured on the fair value of the equity or liability instruments issued. We have adopted the Amended and Restated 2010 Equity IncentiveOur 2019 Plan which provides for the grant of restricted stock awards, performance share awards, unrestricted shares or any combination of the foregoing. Stock-based compensation is recognized as a general and administrative expense in the financial statements and measured at the fair value of the award on the date of grant. We estimate the forfeiture rate based on historical experience as well as expected behavior. The amount of the expense may be subject to adjustment in future periods depending on the specific characteristics of the stock-based award.

In addition, we have awarded long-term incentive target awards (the "Performance Share awards") under the Amended LTIP, which we amended and restated on an annual basisJanuary 8, 2019, to our executives that are payable in shares of our common stock after the conclusion of eachpre-established performance measurement period.period, which is generally three years. The amount that may be earned under the long-term incentive plan is variable depending on the relative total shareholder return of our stock as compared to the total shareholder return of the MSCI U.S. REIT Index (RMS) and the FTSE NAREITNareit Equity Industrial Index over thepre-established performance measurement period. WeUnder the Amended LTIP, each participant’s Performance Share award granted on or after January 1, 2019 will be expressed as a number of shares of common stock and settled in shares of common stock. Target awards were previously expressed as a dollar amount and settled in shares of common stock. Commencing with Performance Share awards granted on or after January 1, 2019, the grant date fair value of the Performance Share awards will be determined under current accounting treatment using a Monte Carlo simulation model on the date of grant and recognized on a straight-line basis over the performance period. For Performance Share awards granted prior to January 1, 2019, we estimate the fair value of the long-term incentive targetPerformance Share awards using a Monte Carlo simulation model on the date of grant and at each reporting period. TheseThe Performance Share awards granted prior to January 1, 2019 are recognized as compensation expense over the requisite performance period based on the fair value of the awardPerformance Share awards at the balance sheet date.

date, which varies quarter to quarter based on our relative share price performance, and are included as a component of Performance Share awards payable in the accompanying consolidated balance sheets.

Off-Balance Sheet Arrangements

We do not have anyoff-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.

Index to Financial Statements

Contractual Obligations

As of February 7, 20186, 2020, we have threetwo outstanding contracts with third-party sellers to acquire threeone industrial properties.property and one improved land parcel. There is no assurance that we will acquire the propertiesproperty and improved land parcel 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 propertiesproperty and improved land parcel we have under contract:

Market

  Number of
Buildings		   Square Feet   Purchase Price
(in thousands)		   Assumed Debt
(in thousands)		 

Los Angeles

   —      —      —     $—   

Northern New Jersey/New York City

   1    83,294    25,170    —   

San Francisco Bay Area

   —      —      —      —   

Seattle

   2    442,720    67,410    —   

Miami

   —      —      —      —   

Washington, D.C.

   —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   3    526,014   $92,580   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

MarketNumber of
Buildings		Square FeetPurchase Price
(in thousands)		Assumed Debt
(in thousands)
Los Angeles1  65,670  $18,000  $—  
Northern New Jersey/New York City—  —  —  —  
San Francisco Bay Area 1
—  —  12,000  —  
Seattle—  —  —  —  
Miami—  —  —  —  
Washington, D.C.—  —  —  —  
Total1  65,670  $30,000  $—  

1Represents one improved land parcel containing approximately 2.78 acres.


50

As of February 7, 2018,6, 2020, we have two outstanding contractsone non-binding letter of intent with third-party purchasersa third party buyer to sell twothree industrial properties consisting of three buildingsin the Washington, D.C. market totaling approximately 340,000 square feet for an aggregate salesa sale price of approximately $39.3 million (aggregate net book value of approximately $29.4 million).$54.0 million. There is no assurance that we will sell the properties under contractletter of intent because the proposed dispositions aredisposition is subject to the purchaser’s completion of a contract and satisfactory due diligence and various closing conditions.

The following table summarizes our contractual obligations due by period as of December 31, 20172019 (dollars in thousands):

Contractual Obligations

  Less than
1 Year		   1-3 Years   3-5 Years   More than
5 Years		   Total 

Debt

  $1,910   $51,882   $211,271   $200,000   $465,063 

Debt interest payments

   12,780    23,277    20,575    27,105    83,737 

Operating lease commitments

   258   534   416   —      1,208 

Purchase obligations

   92,580    —      —      —      92,580 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $107,528   $75,693   $232,262   $227,105   $642,588 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contractual Obligations
Less than
1 Year
1-3 Years3-5 Years
More than
5 Years
Total
Debt$33,077  $161,271  $100,000  $200,000  $494,348  
Debt interest payments14,254  26,855  22,420  26,665  90,194  
Operating lease commitments270  416  —  —  686  
Redevelopment obligations1,100  —  —  —  1,100  
Purchase obligations30,000  —  —  —  30,000  
Total$78,701  $188,542  $122,420  $226,665  $616,328  
Non-GAAP Financial Measures

We use the followingnon-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.

Index to Financial Statements

We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”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 specifiednon-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 (loss), net of redemption of preferred stock and preferred stock dividends for the three months ended December 31, 2017, 20162019, 2018 and 20152017 and for the years ended December 31, 2017, 20162019, 2018 and 20152017 (dollars in thousands except per share data):

  For the Three
Months Ended
December 31,		        For the Three
Months Ended
December 31,		       
  2017  2016  $ Change  % Change  2016  2015  $ Change  % Change 

Net income, net of redemption of preferred stock and preferred stock dividends

 $10,836  $941  $9,895   1051.5%  $941  $(331)  $1,272   n/a 

Gain on sales of real estate investments

  (5,105)   —     (5,105)   n/a   —     (4,248)   4,248   n/a 

Depreciation and amortization

        

Depreciation and amortization from continuing operations

  10,015   9,185   830   9.0%   9,185   12,065   (2,880)   (23.9)% 

Non-real estate depreciation

  (31)   (21)   (10)   47.6%   (21)   (23)   2   (8.7)% 

Allocation to participating securities1

  (107)   (84)   (23)   27.4%   (84)   (70)   (14)   20.0% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Funds from operations attributable to common stockholders2, 3

 $15,608  $10,021  $5,587   55.8%  $10,021  $7,393  $2,628   35.5% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Basic and diluted FFO per common share

 $0.29  $0.22  $0.07   31.8%  $0.22  $0.17  $0.05   29.4% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average basic and diluted common shares

  54,563,353   46,277,521     46,277,521   42,906,538   
 

 

 

  

 

 

    

 

 

  

 

 

   

51

 For the Three Months Ended December 31,  For the Three Months Ended December 31,  
 20192018  $ Change% Change20182017$ Change% Change
Net income, net of redemption of preferred stock and preferred stock dividends$14,821  $22,972  $(8,151) (35.5)%$22,972  $10,836  $12,136  112.0 %
Gain on sales of real estate investments(3,144) (13,624) 10,480  (76.9)%(13,624) (5,105) (8,519) 166.9 %
Depreciation and amortization11,847  10,250  1,597  15.6 %10,250  10,015  235  2.3 %
Non-real estate depreciation(26) (27) 1  (3.7)%(27) (31) 4  (12.9)%
Allocation to participating securities 1
(150) (123) (27) 22.0 %(123) (107) (16) 15.0 %
Funds from operations attributable to common stockholders 2, 3
$23,348  $19,448  $3,900  20.1 %$19,448  $15,608  $3,840  24.6 %
Basic FFO per common share$0.35  $0.33  $0.02  6.1 %$0.33  $0.29  $0.04  13.8 %
Diluted FFO per common share$0.35  $0.33  $0.02  6.1 %$0.33  $0.29  $0.04  13.8 %
Weighted average basic common shares66,706,245  59,689,965  59,689,965  54,563,353  
Weighted average diluted common shares67,000,815  59,689,965  59,689,965  54,563,353  

 For the Year Ended December 31,  For the Year Ended December 31,  
 20192018$ Change% Change20182017$ Change% Change
Net income, net of redemption of preferred stock and preferred stock dividends$55,516  $63,289  $(7,773) (12.3)%$63,289  $49,367  $13,922  28.2 %
Gain on sales of real estate investments(9,391) (28,610) 19,219  (67.2)%(28,610) (30,654) 2,044  (6.7)%
Depreciation and amortization44,015  40,816  3,199  7.8 %40,816  37,870  2,946  7.8 %
Non-real estate depreciation(108) (113) 5  (4.4)%(113) (109) (4) 3.7 %
Allocation to participating securities 1
(565) (478) (87) 18.2 %(478) (404) (74) 18.3 %
Funds from operations attributable to common stockholders 2, 3
$89,467  $74,904  $14,563  19.4 %$74,904  $56,070  $18,834  33.6 %
Basic FFO per common share$1.39  $1.30  $0.09  6.9 %$1.30  $1.09  $0.21  19.3 %
Diluted FFO per common share$1.38  $1.30  $0.08  6.2 %$1.30  $1.09  $0.21  19.3 %
Weighted average basic common shares64,428,406  57,486,399  57,486,399  51,357,719  
Weighted average diluted common shares64,722,976  57,486,399  57,486,399  51,357,719  
1To 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 426,985, 383,930, and 359,910 of weighted average unvested restricted shares outstanding
52

for the three months ended December 31, 2019, 2018 and 2017, respectively, and 402,380, 368,912, and 375,924 for the years ended December 31, 2019, 2018 and 2017, respectively.
2Includes performance share award expense of approximately $1.8 million, $2.7 million and $1.1 million for the three months ended December 31, 2019, 2018 and 2017, respectively, and approximately $8.0 million, $7.1 million and $6.7 million for the years ended December 31, 2019, 2018 and 2017, respectively, which varies quarter to quarter based our total shareholder return outperforming the MSCI U.S. REIT Index (RMS) and the FTSE Nareit Equity Industrial Index over the prior three year period. See “Note 11 – Stockholders’ Equity” in our notes to Financial Statements
consolidated financial statements for more information regarding our performance share awards.
  For the Year Ended
December 31,		        For the Year Ended
December 31,		       
  2017  2016  $ Change  % Change  2016  2015  $ Change  % Change 

Net income, net of redemption of preferred stock and preferred stock dividends

 $49,367  $11,553  $37,814   327.3%  $11,553  $11,036  $517   4.7% 

Gain on sales of real estate investments

  (30,654)   (7,140)   (23,514)   329.3%   (7,140)   (10,567)   3,427   (32.4)% 

Depreciation and amortization

        

Depreciation and amortization from continuing operations

  37,870   34,399   3,471   10.1%   34,399   36,026   (1,627)   (4.5)% 

Non-real estate depreciation

  (109)   (86)   (23)   26.7%   (86)   (102)   16   (15.7)% 

Allocation to participating securities1

  (404)   (335)   (69)   20.6%   (335)   (221)   (114)   51.6% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Funds from operations attributable to common stockholders2, 3, 4

 $56,070  $38,391  $17,679   46.0%  $38,391  $36,172  $2,219   6.1% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Basic and diluted FFO per common share

 $1.09  $0.86  $0.23   26.7%  $0.86  $0.84  $0.02   2.4% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average basic and diluted common shares

  51,357,719   44,725,936     44,725,936   42,861,276   
 

 

 

  

 

 

    

 

 

  

 

 

   

1To 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 thetwo-class method. Under this method, allocations were made to 359,910, 396,855, and 403,865 of weighted average unvested restricted shares outstanding for the three months ended December 31, 2017, 2016 and 2015, respectively, and 375,924, 398,475, and 242,402 for the years ended December 31, 2017, 2016 and 2015, respectively.
2Includes expensed acquisition costs of approximately $0, $1.0 million and $1.1 million for the three months ended December 31, 2017, 2016 and 2015, respectively, and approximately $0, $3.1 million and $4.7 million for the years ended December 31, 2017, 2016 and 2015, respectively.
3Includes performance share award expense of approximately $1.1 million, $3.0 million and $2.0 million for the three months ended December 31, 2017, 2016 and 2015, respectively, and approximately $6.7 million, $7.3 million and $4.5 million for the years ended December 31, 2017, 2016 and 2015, respectively, which varies quarter to quarter based our total shareholder return outperforming the MSCI U.S. REIT Index (RMS) and the FTSE NAREIT Equity Industrial Index over the prior three year period. See “Note 10 —Stockholders’ Equity” in our notes to consolidated financial statements for more information regarding our performance share awards.
4Includes redemption charges of approximately $1.8 million, $0, and $0 during the years ended December 31, 2017, 2016, and 2015, respectively, representing thewrite-off of original issuance costs related to the redemption of our Series A Preferred Stock.

3Includes redemption charges of approximately $0, $0, and $1.8 million during the years ended December 31, 2019, 2018, and 2017, respectively, representing the write-off of original issuance costs related to the redemption of our Series A Preferred Stock. See “Note 11 – Stockholders’ Equity” in our notes to consolidated financial statements for more information regarding our Series A Preferred Stock redemption.


FFO increased by approximately $3.9 million for the three months ended December 31, 2019 compared to the same period from the prior year due primarily to property acquisitions during 2018 and 2019 and same store NOI growth of approximately $1.4 million for the three months ended December 31, 2019 compared to the same period from the prior year. The FFO increase was offset by increased weighted average common shares outstanding for the three months ended December 31, 2019 compared to the same period from the prior year. FFO increased by approximately $14.6 million for the year ended December 31, 2019 compared to the same period from the prior year due primarily to property acquisitions during 2018 and 2019 and same store NOI growth of approximately $9.0 million for the year ended December 31, 2019 compared to the same period from the prior year. The FFO increase was offset by an increase of approximately $1.2 million in performance share award expense for the year ended December 31, 2019, compared to the same period from the prior year, and increased weighted average common shares outstanding for the year ended December 31, 2019 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

Index to Financial Statements

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 months ended December 31, 2017, 20162019, 2018 and 20152017 and for the years ended December 31, 2017, 20162019, 2018 and 20152017 (dollars in thousands):

   For the Three
Months Ended
December 31,		         For the Three
Months Ended
December 31,		       
   2017  2016   $ Change  % Change  2016   2015  $ Change  % Change 

Net income

  $10,836  $1,832   $9,004   491.5%  $1,832   $560  $1,272   227.1% 

Gain on sales of real estate investments

   (5,105)   —      (5,105)   n/a   —      (4,248)   4,248   n/a 

Depreciation and amortization from continuing operations

   10,015   9,185    830   9.0%   9,185    12,065   (2,880)   (23.9)% 

Interest expense, including amortization

   4,691   3,642    1,049   28.8%   3,642    3,095   547   17.7% 

Loss on extinguishment of debt

   —     —      —     n/a   —      —     —     n/a 

Stock-based compensation

   1,471   3,474    (2,003)   (57.7)%   3,474    2,510   964   38.4% 

Acquisition costs

   (1)   990    (991)   n/a   990    1,062   (72)   (6.8)% 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Adjusted EBITDA

  $21,907  $19,123   $2,784   14.6%  $19,123   $15,044  $4,079   27.1% 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

   For the Year Ended
December 31,		        For the Year Ended
December 31,		       
   2017  2016  $ Change  % Change  2016  2015  $ Change  % Change 

Net income

  $53,095  $15,118  $37,977   251.2%  $15,118  $14,601  $517   3.5% 

Gain on sales of real estate investments

   (30,654)   (7,140)   (23,514)   329.3%   (7,140)   (10,567)   3,427   (32.4)% 

Depreciation and amortization from continuing operations

   37,870   34,399   3,471   10.1%   34,399   36,026   (1,627)   (4.5)% 

Interest expense, including amortization

   16,777   13,053   3,724   28.5%   13,053   9,639   3,414   35.4% 

Loss on extinguishment of debt

   —     239   (239)   n/a   239   —     239   n/a 

Stock-based compensation

   8,732   9,444   (712)   (7.5)%   9,444   6,081   3,363   55.3% 

Acquisition costs

   10   3,129   (3,119)   (99.7)%   3,129   4,713   (1,584)   (33.6)% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Adjusted EBITDA

  $85,830  $68,242  $17,588   25.8%  $68,242  $60,493  $7,749   12.8% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 For the Three Months Ended December 31,  For the Three Months Ended December 31,  
 20192018$ Change% Change20182017$ Change% Change
Net income$14,821  $22,972  $(8,151) (35.5)%$22,972  $10,836  $12,136  112.0 %
Gain on sales of real estate investments(3,144) (13,624) 10,480  (76.9)%(13,624) (5,105) (8,519) 166.9 %
Depreciation and amortization from continuing operations11,847  10,250  1,597  15.6 %10,250  10,015  235  2.3 %
Interest expense, including amortization4,069  4,494  (425) (9.5)%4,494  4,691  (197) (4.2)%
Loss on extinguishment of debt189  —  189  n/a—  —  —  n/a
Stock-based compensation2,492  3,248  (756) (23.3)%3,248  1,471  1,777  120.8 %
Acquisition costs(3) (5) 2  (40.0)%(5) (1) (4) 400.0 %
Adjusted EBITDA$30,271  $27,335  $2,936  10.7 %$27,335  $21,907  $5,428  24.8 %
53

For the Year Ended December 31,For the Year Ended December 31,
 20192018$ Change% Change20182017$ Change% Change
Net income$55,516  $63,289  $(7,773) (12.3)%$63,289  $53,095  $10,194  19.2 %
Gain on sales of real estate investments(9,391) (28,610) 19,219  (67.2)%(28,610) (30,654) 2,044  (6.7)%
Depreciation and amortization from continuing operations44,015  40,816  3,199  7.8 %40,816  37,870  2,946  7.8 %
Interest expense, including amortization16,338  18,211  (1,873) (10.3)%18,211  16,777  1,434  8.5 %
Loss on extinguishment of debt189  —  189  n/a—  —  —  n/a
Stock-based compensation10,644  9,270  1,374  14.8 %9,270  8,732  538  6.2 %
Acquisition costs45  124  (79) (63.7)%124  10  114  1,140.0 %
Adjusted EBITDA$117,356  $103,100  $14,256  13.8 %$103,100  $85,830  $17,270  20.1 %
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.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 for the comparison of the three months and years ended December 31, 20172019 and 20162018 includes all properties that were owned as of December 31, 20172019 and since January 1, 20162018 and excludes properties that were either disposed of prior to, held for sale to a third-party or in redevelopment as of December 31, 2017.2019. As of December 31, 2017,2019, the same store pool consisted of 140187 buildings aggregating approximately 10.211.8 million square feet representing approximately 78.3%88.6% of our total square feet owned and threeten improved land parcels containing 4.9approximately 47.2 acres. The same store pool for the comparison of the three months and years ended December 31, 20162018 and 20152017 includes all properties that were owned as of December 31, 20162018 and since January 1, 20152017 and excludes properties that were either disposed of prior to, held for sale to a third-party or in redevelopment as of December 31, 2015.2018. As of

Index to Financial Statements

December 31, 2016,2018, the same store pool consisted of 116156 buildings aggregating approximately 8.610.4 million square feet representing approximately 71.9%81.3% of our total square feet owned and threesix improved land parcels consisting of 4.9containing approximately 23.0 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.

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 and the years ended December 31, 2017, 20162019, 2018 and 20152017 (dollars in thousands):

   For the Three
Months Ended
December 31,		        For the Three
Months Ended
December 31,		       
   2017  2016  $ Change  % Change  2016  2015  $ Change  % Change 

Net income1

  $10,836  $1,832  $9,004   491.5%  $1,832  $560  $1,272   227.1% 

Depreciation and amortization from continuing operations

   10,015   9,185   830   9.0%   9,185   12,065   (2,880)   (23.9)% 

General and administrative

   4,431   6,015   (1,584)   (26.3)%   6,015   4,747   1,268   26.7% 

Acquisition costs

   (1)   990   (991)   n/a   990   1,062   (72)   (6.8)% 

Total other income and expenses

   (508)   3,637   (4,145)   n/a   3,637   (1,157)   4,794   n/a 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net operating income

   24,773   21,659   3,114   14.4%   21,659   17,277   4,382   25.4% 

Less non same store NOI

   (5,003)4   (3,004)4   (1,999)   66.5%   (6,218)5   (2,892)5   (3,326)   115.0% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Same store NOI2

  $19,770  $18,655  $1,115   6.0%  $15,441  $14,385  $1,056   7.3% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Less straight-line rents and amortization of lease intangibles3

   (507)   (1,033)   526   (50.9)%   (261)   (723)   462   (63.9)% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash-basis same store NOI 2

  $19,263  $17,622  $1,641   9.3%  $15,180  $13,662  $1,518   11.1% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

1Includes approximately $0, $0 and $0.1 million of lease termination income for the three months ended December 31, 2017, 2016 and 2015, respectively, and approximately $4.0 million of depreciation expense for three months ended December 31, 2015 related to the redevelopment of the South Main property as a result of the reduction of the useful lives of the original buildings.
2Includes approximately $0, $0 and $0.1 million of lease termination income for the three months ended December 31, 2017, 2016 and 2015, respectively.
3Includes straight-line rents and amortization of lease intangibles for the same store pool only.
4Includes 2016 and 2017 acquisitions.
5Includes 2015 and 2016 acquisitions and one completed redevelopment property with a gross book value of approximately $40.3 million and accumulated depreciation of approximately $4.2 million as of December 31, 2016.

Index to Financial Statements
  For the Year Ended
December 31,		        For the Year Ended
December 31,		       
  2017  2016  $ Change  % Change  2016  2015  $ Change  % Change 

Net income1

 $53,095  $15,118  $37,977   251.2%  $15,118  $14,601  $517   3.5% 

Depreciation and amortization from continuing operations

  37,870   34,399   3,471   10.1%   34,399   36,026   (1,627)   (4.5)% 

General and administrative

  19,681   19,319   362   1.9%   19,319   14,846   4,473   30.1% 

Acquisition costs

  10   3,129   (3,119)   (99.7)%   3,129   4,713   (1,584)   (33.6)% 

Total other income and expenses

  (14,046)   6,128   (20,174)   n/a   6,128   (946)   7,074   n/a 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net operating income

  96,610   78,093   18,517   23.7%   78,093   69,240   8,853   12.8% 

Less non same store NOI

  (17,651)4   (8,102)4   (9,549)   117.9%   (18,460)5   (12,386)5   (6,074)   49.0% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Same store NOI2

 $78,959  $69,991  $8,968   12.8%  $59,633  $56,854  $2,779   4.9% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Less straight-line rents and amortization of lease intangibles 3

  (2,739)   (4,564)   1,825   (40.0)%   (2,200)   (3,982)   1,782   (44.8)% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash-basis same store NOI2

 $76,220  $65,427  $10,793   16.5%  $57,433  $52,872  $4,561   8.6% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

1Includes approximately $0.1 million, $0 and $0.3 million of lease termination income for the years ended December 31, 2017, 2016 and 2015, respectively and approximately $4.0 million of depreciation expense for the year ended December 31, 2015 related to the redevelopment of the South Main property as a result of the reduction of the useful lives of the original buildings.
2Includes approximately $0.1 million, $0 and $0.2 million of lease termination income for the years ended December 31, 2017, 2016 and 2015, respectively.
3Includes straight-line rents and amortization of lease intangibles for the same store pool only.
4Includes 2016 and 2017 acquisitions.
5Includes 2015 and 2016 acquisitions and one completed redevelopment property with a gross book value of approximately $40.3 million and accumulated depreciation of approximately $4.2 million as of December 31, 2016.

54

 For the Three Months Ended December 31,  For the Three Months Ended December 31,  
 20192018$ Change% Change20182017$ Change% Change
Net income 1
$14,821  $22,972  $(8,151) (35.5)%$22,972  $10,836  $12,136  112.0 %
Depreciation and amortization11,847  10,250  1,597  15.6 %10,250  10,015  235  2.3 %
General and administrative6,072  6,371  (299) (4.7)%6,371  4,431  1,940  43.8 %
Acquisition costs(3) (5) 2  (40.0)%(5) (1) (4) 400.0 %
Total other income and expenses470  (10,471) 10,941  n/a  (10,471) (508) (9,963) 1961.2 %
Net operating income33,207  29,117  4,090  14.0 %29,117  24,773  4,344  17.5 %
Less non same store NOI(5,506) 
2
(2,563) 
2
(2,943) 114.8 %(5,983) 
3
(3,261) 
3
(2,722) 83.5 %
Same store NOI 4
$27,701  $26,554  $1,147  4.3 %$23,134  $21,512  $1,622  7.5 %
Less straight-line rents and amortization of lease intangibles 5
(664) (928) 264  (28.4)%(233) (847) 614  (72.5)%
Cash-basis same store NOI$27,037  $25,626  $1,411  5.5 %$22,901  $20,665  $2,236  10.8 %
1Includes $0.1 million, $0 and $0 of lease termination income for the three months ended December 31, 2019, 2018 and 2017.
2Includes 2018 and 2019 acquisitions and dispositions, four properties under redevelopment and one completed redevelopment property with a gross book value of approximately $10.0 as of December 31, 2019.
3Includes 2017 and 2018 acquisitions and dispositions, five properties under redevelopment and one completed redevelopment property with a gross book value of approximately $29.3 as of December 31, 2018.
4Includes $0.1 million, $0 and $0 of lease termination income for the three months ended December 31, 2019, 2018 and 2017.
5Includes straight-line rents and amortization of lease intangibles for the same store pool only.

 For the Year Ended December 31,  For the Year Ended December 31,  
 20192018$ Change% Change20182017$ Change% Change
Net income 1
$55,516  $63,289  $(7,773) (12.3)%$63,289  $53,095  $10,194  19.2 %
Depreciation and amortization44,015  40,816  3,199  7.8 %40,816  37,870  2,946  7.8 %
General and administrative23,924  21,503  2,421  11.3 %21,503  19,681  1,822  9.3 %
Acquisition costs45  124  (79) (63.7)%124  10  114  1,140.0 %
Total other income and expenses3,321  (14,063) 17,384  n/a  (14,063) (14,046) (17) 0.1 %
Net operating income126,821  111,669  15,152  13.6 %111,669  96,610  15,059  15.6 %
Less non same store NOI(16,331) 
2
(8,164) 
2
(8,167) 100.0 %(20,737) 
3
(11,576) 
3
(9,161) 79.1 %
Same store NOI 4
$110,490  $103,505  $6,985  6.7 %$90,932  $85,034  $5,898  6.9 %
Less straight-line rents and amortization of lease intangibles 5
(3,851) (5,823) 1,972  (33.9)%(2,737) (4,161) 1,424  (34.2)%
Cash-basis same store NOI$106,639  $97,682  $8,957  9.2 %$88,195  $80,873  $7,322  9.1 %
1Includes approximately $0.3 million, $0.7 million and $0.1 million of lease termination income for the years ended December 31, 2019, 2018 and 2017, respectively.
2Includes 2018 and 2019 acquisitions and dispositions, four properties under redevelopment and one completed redevelopment property with a gross book value of $10.0 million as of December 31, 2019.
55

3Includes 2017 and 2018 acquisitions acquisitions and dispositions, five properties under redevelopment and one completed redevelopment property with a gross book value of approximately $29.3 as of December 31, 2018.
4Includes approximately $0.3 million, $0.7 million and $0.1 million million of lease termination income for the years ended December 31, 2019, 2018 and 2017, respectively.
5Includes straight-line rents and amortization of lease intangibles for the same store pool only.

Cash-basis same store NOI increased by approximately $10.8$1.4 million for the yearthree months ended December 31, 20172019 compared to the same period from the prior year primarily due to increased rental revenue and tenant reimbursement revenue on new and renewed leases. SameFor the three months ended December 31, 2019 and 2018, approximately $0.3 million and $0.2 million, respectively, of contractual rent abatements were given to certain tenants in the same-store pool. In addition, approximately $0.4 million of the increase in cash-basis same store rental revenues and tenant reimbursements primarily increased dueNOI for the three months ended December 31, 2019 compared to new leases at our V Street, Interstate 130, Hamilton, Airgate, Kent 202, and 180 Manor properties. the three months ended December 31, 2019 related to properties that were acquired vacant or with near term expirations in 2018.
Cash-basis same store NOI increased by approximately $1.6$9.0 million for the three monthsyear ended December 31, 20172019 compared to the same period from the prior year primarily due to increased rental revenue and tenant reimbursement revenue on new and renewed leases. Same store rental revenuesleases and tenant reimbursements primarily increased dueapproximately $0.3 million in lease termination income, offset by approximately $0.6 million in rent abatements provided to new leasesthe tenant at our V Street, Interstate 130, Hamilton, Kent 202, and 180 Manor properties.Belleville property. For the three months and years ended December 31, 20172019 and 2016,2018, approximately $0.3$1.5 million and $0.7 million, respectively, and approximately $1.7 million and $3.3$2.7 million, respectively, of contractual rent abatements were given to certain tenants in the same-store pool.

Approximately $2.0 million of the increase in cash-basis same store NOI for the year ended December 31, 2019 compared to the year ended December 31, 2018 related to properties that were acquired vacant or with near term expirations in 2018.


Item 7A.Quantitative And Qualitative Disclosures About Market Risk.

Item 7A.  Quantitative And Qualitative Disclosures About Market Risk.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business strategies, the primary market risk which we are exposed to is interest rate risk. We are exposed to interest rate changes primarily as a result of debt used to maintain liquidity, fund capital expenditures and expand our investment portfolio and operations. We seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. As described below, some of our outstanding debt bears interest at variable rates, and we expect that some of our future outstanding debt will have variable interest rates. We may use interest rate caps and/or swap agreements to manage our interest rate risks relating to our variable rate debt. We expect to replace variable rate debt on a regular basis with fixed rate, long-term debt to finance our assets and operations.

Index to Financial Statements

As of December 31, 2017,2019, we had $150.0$100.0 million of borrowings outstanding under our Facility. Of the $150.0$100.0 million outstanding on the Facility, $150.0$100.0 million is subject to interest rate caps. See “Note 89 – Derivative Financial Instruments” in our notes to consolidated financial statements for more information regarding our interest rate caps. Amounts borrowed under our Facility bear interest at a variable rate based on LIBOR plus an applicable LIBOR margin. The weighted average interest rate on borrowings outstanding under our Facility was 2.54%3.03% as of December 31, 2017.2019. If the LIBOR rate fluctuateswere to fluctuate by 0.25%, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows by approximately $0.4$0.3 million annually on the total of the outstanding balances on our Facility as of December 31, 2017.

2019.

In the event that LIBOR is discontinued, the interest rate for our debt, including our Facility, will be based on a replacement rate or an alternate base rate as specified in the applicable documentation governing such debt or as otherwise agreed upon. Such an event would not affect our ability to borrow or maintain already outstanding borrowings, but the replacement rate or alternate base rate could be higher or more volatile than LIBOR prior to its discontinuance. We understand that LIBOR is expected to remain available through the end of 2021, but may be discontinued or otherwise become unavailable thereafter.
Item 8.Financial Statements And Supplementary Data.

Item 8.  Financial Statements And Supplementary Data.
See Part IV, Item 15 – “Exhibits and Financial Statement Schedules” beginning on pageF-1 of this Annual Report on Form10-K.



Item 9.Changes In And Disagreements With Accountants On Accounting And Financial Disclosure.

Item 9.  Changes In And Disagreements With Accountants On Accounting And Financial Disclosure.
56

None.



Item 9A.Controls And Procedures.

Item 9A.  Controls And Procedures.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer, President and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act), and has concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to give reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’sSecurities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer, President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Management’s Annual Report on Internal Control Over Financial Reporting

Terreno Realty Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting. This internal control system was designed to provide reasonable assurance to the company’s management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Terreno Realty Corporation’s management assessed the effectiveness of its internal control over financial reporting as of December 31, 2017.2019. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on its assessment, management of Terreno Realty Corporation believes that, as of December 31, 2017,2019, the company’s internal control over financial reporting is effective based on those criteria. Terreno Realty Corporation’s independent auditors have issued an audit report on the effectiveness of the company’s internal control over financial reporting, as stated in their report included in this Annual Report on Form10-K, (which expresses an unqualified opinion on the effectiveness of the company’s internal control over financial reporting as of December 31, 2017)2019).

Index to Financial Statements




Report of Independent Registered Public Accounting Firm


To the Shareholders and the Board of Directors of Terreno Realty Corporation


Opinion on Internal Control over Financial Reporting


We have audited Terreno Realty Corporation’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control — Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Terreno Realty Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.

criteria.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes and the financial statement schedule listed in the Index at Item 15 of the Company and our report dated February 7, 20186, 2020 expressed an unqualified opinion thereon.


Basis for Opinion


The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.


Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control Over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Ernst & Young LLP

San Francisco, CA

February 7, 2018

6, 2020

Index to Financial Statements




58


Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.Other Information.

Item 9B.  Other Information.
None.

Part III



Item 10.Directors, Executive Officers and Corporate Governance.

Item 10.  Directors, Executive Officers and Corporate Governance.
The information required by Item 10 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172019 and is incorporated herein by reference.


Item 11.Executive Compensation.

Item 11.  Executive Compensation.

The information required by Item 11 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172019 and is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 12 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172019 and is incorporated herein by reference.

Item 13.Certain Relationships and Related Transactions, and Director Independence.

Item 13.  Certain Relationships and Related Transactions, and Director Independence.

The information required by Item 13 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172019 and is incorporated herein by reference.

Item 14.Principal Accounting Fees and Services.

Item 14.  Principal Accounting Fees and Services.
The information required by Item 14 will be contained in a definitive proxy statement for our Annual Meeting of Stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year ended December 31, 20172019 and is incorporated herein by reference.

Index to Financial Statements


59

Part IV

Item 15.Exhibits and Financial Statement Schedules.

Item 15.  Exhibits and Financial Statement Schedules.
(a)
1. and 2.Financial Statementsand Schedules

The following consolidated financial information is included as a separate section of this Annual Report on Form10-K beginning on pageF-1 as follows:



Page

Page
F-1
1

F-2
3

F-3
4

F-4
5

F-5
6

F-6
7

F-7
9

S-1
1

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted, or the required information is included in the consolidated financial statements and notes thereto.

3. Exhibits

The exhibits required to be filed by Item 601 ofRegulation S-K are listed in the Exhibit Index at the end of this Annual Report on Form10-K immediately preceding the signature page, which is incorporated by reference herein.

Item 16.Form10-K Summary.

Item 16.  Form 10-K Summary.
None.

Index to Financial Statements

60

Report of Independent Registered Public Accounting Firm



To the Shareholders and the Board of Directors of Terreno Realty Corporation


Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheets of Terreno Realty Corporation (the Company) as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172019 and 2016,2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company adopted and applied the revised definition of a business which changed the treatment of acquisition costs as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of Business,” effective January 1, 2017.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 7, 20186, 2020 expressed an unqualified opinion thereon.


Basis for Opinion


These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

1

Valuation of acquired properties
Description of matter
In the year ended December 31, 2019, the Company completed 13 real estate acquisitions for a total purchase price of $289.6 million. The properties were acquired from unrelated third parties. As further discussed in Notes 2 and 4 of the consolidated financial statements, the transactions were accounted for as asset acquisitions. The purchase price for each acquisition was allocated to the individual acquired assets and liabilities based on their relative fair values.

Auditing the Company’s real estate acquisitions is complex and required the involvement of a valuation specialist due to the judgments and estimates in determining the fair value of the components of each acquisition. The fair value of the tangible assets is determined by valuing the property as if it were vacant. Land values are derived from current comparative sales values, when available, or management’s estimates of the fair value based on market conditions and the experience of the Company’s management team. Building and improvement values are calculated as replacement cost less depreciation, or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods. The fair value of the above and below-market leases is based on the present value of the difference between the contractual amounts to be received pursuant to the acquired leases (using a discount rate that reflects the risks associated with the acquired leases) and the Company’s estimate of the market lease rates measured over a period equal to the remaining term of the leases plus the term of any below-market fixed rate renewal options. All of these assumptions are sensitive to and affected by expected future market or economic conditions, particularly those in the markets in which the Company’s acquisitions occur.

How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s accounting for real estate acquisitions relative to purchase accounting, including controls over the review of the valuation models and related significant assumptions underlying the valuation of the acquired assets and liabilities.

To test the purchase price allocations to the assets and liabilities acquired, our audit procedures included, among others, review of the purchase agreements, assessing the methodologies and testing the significant assumptions discussed above used to value the components of the acquired properties, assessing the sensitivity of changes in significant assumptions on the purchase price allocation and testing the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared land comparative sales values, building replacement cost and depreciation estimates, market rental rates, discount rate and market rental growth rates with external market data, and the incorporation of these assumptions in the cash flow projections and overall valuation conclusions. We also tested the completeness and accuracy of the underlying data. We involved our valuation specialists to assist in the assessment of the methodology utilized by the Company and to test certain of the assumptions used in the valuation of land, building and above and below market intangibles.

/s/ Ernst & Young LLP


We have served as the Company‘s auditor since 2012.

San Francisco, California

February 7, 2018

6, 2020

Index to Financial Statements

2

Terreno Realty Corporation

Consolidated Balance Sheets

(in thousands – except share and per share data)

   December 31, 2017  December 31, 2016 

ASSETS

   

Investments in real estate

   

Land

  $759,659  $570,181 

Buildings and improvements

   801,242   710,277 

Intangible assets

   76,029   62,580 
  

 

 

  

 

 

 

Total investments in properties

   1,636,930   1,343,038 

Accumulated depreciation and amortization

   (139,814)   (109,357) 
  

 

 

  

 

 

 

Net investments in real estate

   1,497,116   1,233,681 

Cash and cash equivalents

   35,710   14,208 

Restricted cash

   7,090   4,270 

Other assets, net

   27,955   26,822 
  

 

 

  

 

 

 

Total assets

  $1,567,871  $1,278,981 
  

 

 

  

 

 

 

LIABILITIES AND EQUITY

   

Liabilities

   

Credit facility

  $—    $51,500 

Term loans payable, net

   148,897   148,616 

Senior unsecured notes, net

   247,955   148,594 

Mortgage loans payable, net

   64,831   66,617 

Security deposits

   11,058   9,922 

Intangible liabilities, net

   22,361   3,485 

Dividends payable

   12,181   9,483 

Performance share awards payable

   11,824   10,739 

Accounts payable and other liabilities

   21,270   18,220 
  

 

 

  

 

 

 

Total liabilities

   540,377   467,176 

Commitments and contingencies (Note 13)

   

Equity

   

Stockholders’ equity

   

Preferred stock: $0.01 par value, 100,000,000 shares authorized, and 0 and 1,840,000 shares (liquidation preference of $25.00 per share) issued and outstanding, respectively

   —     46,000 

Common stock: $0.01 par value, 400,000,000 shares authorized, and 55,368,737 and 47,414,365 shares issued and outstanding, respectively

   553  474

Additionalpaid-in capital

   1,023,184   766,229 

Retained earnings

   4,803   —   

Accumulated other comprehensive loss

   (1,046)   (898) 
  

 

 

  

 

 

 

Total stockholders’ equity

   1,027,494   811,805 
  

 

 

  

 

 

 

Total liabilities and equity

  $1,567,871  $1,278,981 
  

 

 

  

 

 

 

December 31, 2019December 31, 2018
ASSETS
Investments in real estate
Land$1,055,146  $833,995  
Buildings and improvements909,201  837,816  
Construction in progress101,253  94,695  
Intangible assets88,594  79,270  
Total investments in properties2,154,194  1,845,776  
Accumulated depreciation and amortization(208,279) (169,772) 
Net investments in real estate1,945,915  1,676,004  
Cash and cash equivalents110,082  31,004  
Restricted cash2,657  3,475  
Senior secured loan, net15,858  54,492  
Other assets, net33,952  31,529  
Total assets$2,108,464  $1,796,504  
LIABILITIES AND EQUITY
Liabilities
Credit facility$—  $19,000  
Term loans payable, net99,583  149,067  
Senior unsecured notes, net347,674  248,263  
Mortgage loans payable, net44,318  45,767  
Security deposits14,149  11,933  
Intangible liabilities, net28,127  23,093  
Dividends payable18,158  14,643  
Performance share awards payable11,633  12,048  
Accounts payable and other liabilities27,699  24,893  
Total liabilities591,341  548,707  
   Commitments and contingencies (Note 14)
Equity
Stockholders’ equity
Common stock: $0.01 par value, 400,000,000 shares authorized, and 67,252,787 and 61,013,711 shares issued and outstanding, respectively673  610  
Additional paid-in capital1,514,266  1,233,763  
Retained earnings2,621  14,185  
Accumulated other comprehensive loss(437) (761) 
Total stockholders’ equity1,517,123  1,247,797  
Total liabilities and equity$2,108,464  $1,796,504  


The accompanying notes are an integral part of these consolidated financial statements.

Index to Financial Statements

3

Terreno Realty Corporation

Consolidated Statements of Operations

(in thousands – except share and per share data)

   For the Year Ended December 31, 
   2017  2016  2015 

REVENUES

    

Rental revenues

  $103,329  $85,018  $75,899 

Tenant expense reimbursements

   29,155   23,400   19,996 
  

 

 

  

 

 

  

 

 

 

Total revenues

   132,484   108,418   95,895 
  

 

 

  

 

 

  

 

 

 

COSTS AND EXPENSES

    

Property operating expenses

   35,874   30,325   26,655 

Depreciation and amortization

   37,870   34,399   36,026 

General and administrative

   19,681   19,319   14,846 

Acquisition costs

   10  3,129   4,713 
  

 

 

  

 

 

  

 

 

 

Total costs and expenses

   93,435   87,172   82,240 
  

 

 

  

 

 

  

 

 

 

OTHER INCOME (EXPENSE)

    

Interest and other income

   169  24  18

Interest expense, including amortization

   (16,777)   (13,053)   (9,639) 

Loss on extinguishment of debt

   —     (239)   —   

Gain on sales of real estate investments

   30,654   7,140   10,567 
  

 

 

  

 

 

  

 

 

 

Total other income and expenses

   14,046   (6,128)   946
  

 

 

  

 

 

  

 

 

 

Net income

   53,095   15,118   14,601 

Redemption of preferred stock

   (1,767)   —     —   

Preferred stock dividends

   (1,961)   (3,565)   (3,565) 
  

 

 

  

 

 

  

 

 

 

Net income, net of redemption of preferred stock and preferred stock dividends

   49,367   11,553   11,036 

Allocation to participating securities

   (352)   (95)   (78) 
  

 

 

  

 

 

  

 

 

 

Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends

  $49,015  $11,458  $10,958 
  

 

 

  

 

 

  

 

 

 

EARNINGS PER COMMON SHARE – BASIC AND DILUTED:

    

Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends

  $0.95  $0.26  $0.26 
  

 

 

  

 

 

  

 

 

 

BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

   51,357,719   44,725,936   42,861,276 
  

 

 

  

 

 

  

 

 

 

For the Year Ended December 31,
201920182017
REVENUES
Rental revenues and tenant expense reimbursements$171,022  $151,657  $132,484  
Total revenues171,022  151,657  132,484  
COSTS AND EXPENSES
Property operating expenses44,201  39,988  35,874  
Depreciation and amortization44,015  40,816  37,870  
General and administrative23,924  21,503  19,681  
Acquisition costs45  124  10  
Total costs and expenses112,185  102,431  93,435  
OTHER INCOME (EXPENSE)
Interest and other income3,815  3,664  169  
Interest expense, including amortization(16,338) (18,211) (16,777) 
Loss on extinguishment of debt(189) —  —  
Gain on sales of real estate investments9,391  28,610  30,654  
Total other income (expense)(3,321) 14,063  14,046  
Net income55,516  63,289  53,095  
Redemption of preferred stock—  —  (1,767) 
Preferred stock dividends—  —  (1,961) 
Net income, net of redemption of preferred stock and preferred stock dividends55,516  63,289  49,367  
Allocation to participating securities(351) (401) (352) 
Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends$55,165  $62,888  $49,015  
EARNINGS PER COMMON SHARE – BASIC AND DILUTED:
Net income available to common stockholders - basic, net of redemption of preferred stock and preferred stock dividends$0.86  $1.09  $0.95  
Net income available to common stockholders - diluted, net of redemption of preferred stock and preferred stock dividends$0.85  $1.09  $0.95  
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING64,428,406  57,486,399  51,357,719  
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING64,722,976  57,486,399  51,357,719  


The accompanying notes are an integral part of these consolidated financial statements.

Index to Financial Statements

4

Terreno Realty Corporation

Consolidated Statements of Comprehensive Income

(in thousands)

   For the Year Ended December 31, 
       2017          2016          2015     

Net income

  $53,095  $15,118  $14,601 

Other comprehensive income (loss): cash flow hedge adjustment

   (148)   (102)   (649) 
  

 

 

  

 

 

  

 

 

 

Comprehensive income

  $52,947  $15,016  $13,952 
  

 

 

  

 

 

  

 

 

 

For the Year Ended December 31,
201920182017
Net income$55,516  $63,289  $53,095  
Other comprehensive income (loss): cash flow hedge adjustment324  285  (148) 
Comprehensive income$55,840  $63,574  $52,947  


The accompanying notes are an integral part of these consolidated financial statements.

Index to Financial Statements

5

Terreno Realty Corporation

Consolidated Statements of Equity

(in thousands – except share data)

  Preferred
Stock		  Common Stock  Additional
Paid-in
Capital		  Retained
Earnings		  Accumulated
Other
Comprehensive
Loss		  Total 
   Number of
Shares		  Amount     

Balance as of December 31, 2014

 $46,000   42,869,463  $428  $700,755  $—    $(147)  $747,036 

Net income

  —     —     —     —     14,601   —     14,601 

Issuance of common stock, net of issuance costs of $69

  —     153,044   2  3,051   —     —     3,053 

Repurchase of common stock

  —     (20,322)   —     (512)   —     —     (512) 

Issuance of restricted stock

  —     308,087   —     —     —     —     —   

Stock-based compensation

  —     —     —     1,600   —     —     1,600 

Common stock dividends

  —     —     —     (17,446)   (11,036)   —     (28,482) 

Preferred stock dividends

  —     —     —     —     (3,565)   —     (3,565) 

Other comprehensive loss

  —     —     —     —     —     (649)   (649) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2015

  46,000   43,310,272   430  687,448   —     (796)   733,082 

Net income

  —     —     —     —     15,118   —     15,118 

Issuance of common stock, net of issuance costs of $2,813

  —     4,139,224   44  101,417   —     —     101,461 

Repurchase of common stock

  —     (67,928)   —     (1,551)   —     —     (1,551) 

Issuance of restricted stock

  —     32,797   —     —     —     —     —   

Stock-based compensation

  —     —     —     2,231   —     —     2,231 

Common stock dividends

  —     —     —     (23,316)   (11,553)   —     (34,869) 

Preferred stock dividends

  —     —     —     —     (3,565)   —     (3,565) 

Other comprehensive loss

  —     —     —     —     —     (102)   (102) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2016

  46,000   47,414,365   474  766,229  $—    $(898)   811,805 

Net income

  —     —     —     —     53,095   —     53,095 

Issuance of common stock, net of issuance costs of $4,202

  —     8,066,150   79  256,645   —     —     256,724 

Repurchase of common stock

  —     (144,025)   —     (3,436)   —     —     (3,436) 

Redemption of preferred stock

  (46,000)   —     —     1,729   (1,767)   —     (46,038) 

Issuance of restricted stock

  —     32,247   —     —     —     —     —   

Stock-based compensation

  —     —     —     2,017   —     —     2,017 

Common stock dividends

  —     —     —     —     (44,564)   —     (44,564) 

Preferred stock dividends

  —     —     —     —     (1,961)   —     (1,961) 

Other comprehensive loss

  —     —     —     —     —     (148)   (148) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance as of December 31, 2017

 $—     55,368,737  $553  $1,023,184  $4,803  $(1,046)  $1,027,494 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Preferred
Stock
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Total
Number of
Shares
Amount
Balance as of December 31, 2016$46,000  47,414,365  $474  $766,229  $—  $(898) $811,805  
Net income—  —  —  —  53,095  —  53,095  
Issuance of common stock, net of issuance costs of $4,202—  8,066,150  79  256,645  —  —  256,724  
Repurchase of common stock—  (144,025) —  (3,436) —  —  (3,436) 
Redemption of preferred stock(46,000) —  —  1,729  (1,767) —  (46,038) 
Issuance of restricted stock—  32,247  —  —  —  —  —  
Stock-based compensation—  —  —  2,017  —  —  2,017  
Common stock dividends—  —  —  —  (44,564) —  (44,564) 
Preferred stock dividends—  —  —  —  (1,961) —  (1,961) 
Other comprehensive loss—  —  —  —  —  (148) (148) 
Balance as of December 31, 2017—  55,368,737  553  1,023,184  4,803  (1,046) 1,027,494  
Net income—  —  —  —  63,289  —  63,289  
Issuance of common stock, net of issuance costs of $3,489—  5,698,326  57  212,164  —  —  212,221  
Repurchase of common stock—  (107,267) —  (3,870) —  —  (3,870) 
Issuance of restricted stock—  53,915  —  —  —  —  —  
Stock-based compensation—  —  —  2,285  —  —  2,285  
Common stock dividends—  —  —  —  (53,907) —  (53,907) 
Other comprehensive income—  —  —  —  —  285  285  
Balance as of December 31, 2018—  61,013,711  610  1,233,763  14,185  (761) 1,247,797  
Net income—  —  —  —  55,516  —  55,516  
Issuance of common stock, net of issuance costs of $4,593—  6,271,863  63  280,436  —  —  280,499  
Repurchase of common stock—  (143,886) —  (3,959) —  —  (3,959) 
Issuance of restricted stock—  111,099  —  —  —  —  —  
Stock-based compensation—  —  —  4,026  —  —  4,026  
Common stock dividends—  —  —  —  (67,080) —  (67,080) 
Other comprehensive income—  —  —  —  —  324  324  
Balance as of December 31, 2019$—  67,252,787  $673  $1,514,266  $2,621  $(437) $1,517,123  


The accompanying notes are an integral part of these consolidated financial statements.

Index to Financial Statements

6

Terreno Realty Corporation

Consolidated Statements of Cash Flows

(in thousands)

   For the Year Ended December 31, 
   2017  2016  2015 

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

  $53,095  $15,118  $14,601 

Adjustments to reconcile net income to net cash provided by operating activities

    

Straight-line rents

   (3,657)   (4,740)   (3,889) 

Amortization of lease intangibles

   (2,161)   (1,338)   (1,925) 

Depreciation and amortization

   37,870   34,399   36,026 

Loss on extinguishment of debt

   —     239  —   

Gain on sales of real estate investments

   (30,654)   (7,140)   (10,567) 

Deferred financing cost and mortgage premium amortization

   1,193   766  393

Stock-based compensation

   8,732   9,444   6,081 

Changes in assets and liabilities

    

Other assets

   584   (3,174)   (1,252) 

Accounts payable and other liabilities

   4,496   5,667   2,600 
  

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

   69,498   49,241   42,068 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Cash paid for property acquisitions

   (297,109)   (128,495)   (262,979) 

Proceeds from sales of real estate investments, net

   75,396   21,379   23,671 

Additions to construction in progress

   —     (15,577)   (1,510) 

Additions to buildings, improvements and leasing costs

   (27,405)   (26,936)   (18,846) 
  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

   (249,118)   (149,629)   (259,664) 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Issuance of common stock

   255,295   101,432   3,122 

Issuance costs on issuance of common stock

   (3,764)   (1,506)   (46) 

Repurchase of common stock

   (3,436)   (1,551)   (512) 

Repurchase of preferred stock

   (46,000)   —     —   

Purchase of derivative instrument

   —     —     (343) 

Borrowings on credit facility

   93,000   95,500   —   

Payments on credit facility

   (144,500)   (44,000)   —   

Payments on term loans payable

   —     (50,000)   —   

Borrowings on senior unsecured notes

   100,000   50,000   100,000 

Payments on mortgage loans payable

   (1,916)   (16,871)   (24,844) 

Payment of deferred financing costs

   (872)   (2,499)   (1,127) 

Dividends paid to common stockholders

   (41,866)   (33,182)   (27,545) 

Dividends paid to preferred stockholders

   (1,999)   (3,565)   (3,565) 
  

 

 

  

 

 

  

 

 

 

Net cash provided by financing activities

   203,942   93,758   45,140 

Net increase (decrease) in cash and cash equivalents and restricted cash

   24,322   (6,630)   (172,456) 

Cash and cash equivalents and restricted cash at beginning of year

   18,478   25,108   197,564 
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents and restricted cash at end of year

  $42,800  $18,478  $25,108 
  

 

 

  

 

 

  

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid for interest, net of capitalized interest

  $13,839  $11,888  $8,382 

Supplemental disclosures ofnon-cash transactions

    

Accounts payable related to capital improvements

  $6,996  $7,955  $5,195 

Redemption of preferred stock

   1,729   —     —   

Reconciliation of cash paid for property acquisitions

    

Acquisition of properties

  $319,666  $130,944  $271,293 

Assumption of mortgage loans payable

   —     —     (4,796) 

Mortgage premiums

   —     —     (60) 

Assumption of other assets and liabilities

   (22,557)   (2,449)   (3,458) 
  

 

 

  

 

 

  

 

 

 

Net cash paid for property acquisitions

  $297,109  $128,495  $262,979 
  

 

 

  

 

 

  

 

 

 

For the Year Ended December 31,
201920182017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$55,516  $63,289  $53,095  
Adjustments to reconcile net income to net cash provided by operating activities
Straight-line rents(2,597) (3,459) (3,657) 
Amortization of lease intangibles(4,682) (3,694) (2,161) 
Depreciation and amortization44,015  40,816  37,870  
Loss on extinguishment of debt189  —  —  
Gain on sales of real estate investments(9,391) (28,610) (30,654) 
Deferred financing cost amortization1,562  1,442  1,193  
Deferred senior secured loan fee amortization(531) (392) —  
Stock-based compensation10,644  9,270  8,732  
Changes in assets and liabilities
Other assets(1,579) (1,531) 584  
Accounts payable and other liabilities1,542  468  4,496  
Net cash provided by operating activities94,688  77,599  69,498  
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions(238,661) (221,806) (297,109) 
Proceeds from sales of real estate investments, net47,133  79,594  75,396  
Additions to construction in progress(27,884) (9,668) —  
Additions to buildings, improvements and leasing costs(32,070) (28,977) (27,405) 
Cash paid for senior secured loan—  (55,000) —  
Origination and other fees received on senior secured loan—  900  —  
Net cash used in investing activities(251,482) (234,957) (249,118) 
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock278,058  208,949  255,295  
Issuance costs on issuance of common stock(4,023) (3,030) (3,764) 
Repurchase of common stock(3,959) (3,870) (3,436) 
Repurchase of preferred stock—  —  (46,000) 
Borrowings on credit facility17,000  204,000  93,000  
Payments on credit facility(36,000) (185,000) (144,500) 
Payments on term loans payable(50,000) —  —  
Borrowings on senior unsecured notes100,000  ��  100,000  
Payments on mortgage loans payable(1,514) (19,201) (1,916) 
Payment of deferred financing costs(943) (1,366) (872) 
Dividends paid to common stockholders(63,565) (51,445) (41,866) 
Dividends paid to preferred stockholders—  —  (1,999) 
Net cash provided by financing activities235,054  149,037  203,942  
Net increase (decrease) in cash and cash equivalents and restricted cash78,260  (8,321) 24,322  
Cash and cash equivalents and restricted cash at beginning of year34,479  42,800  18,478  
Cash and cash equivalents and restricted cash at end of year$112,739  $34,479  $42,800  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
7

Cash paid for interest, net of capitalized interest$18,351  $19,787  $13,839  
Supplemental disclosures of non-cash transactions
Accounts payable related to capital improvements$12,498  $10,712  $6,996  
Redemption of preferred stock—  —  1,729  
Non-cash repayment of senior secured loan(39,085) —  —  
Lease liability arising from recognition of right-of-use asset647  —  —  
Reconciliation of cash paid for property acquisitions
Acquisition of properties$250,506  $227,058  $319,666  
Assumption of other assets and liabilities(11,845) (5,252) (22,557) 
Net cash paid for property acquisitions$238,661  $221,806  $297,109  


The accompanying notes are an integral part of these consolidated financial statements.

Index to Financial Statements

8

Terreno Realty Corporation

Notes to Consolidated Financial Statements

Note 1. Organization

Terreno Realty Corporation (“Terreno”, and together with its subsidiaries, the “Company”) acquires, owns and operates industrial real estate in six6 major coastal U.S. markets: Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami, and Washington, D.C. All square feet, acres, occupancy, expected investment and related expected redevelopment costs and number of properties and improved land parcels disclosed in these notes to the consolidated financial statements are unaudited. As of December 31, 2017,2019, the Company owned 196220 buildings aggregating approximately 13.013.3 million square feet, and ten19 improved land parcels consisting of approximately 47.9 acres.

77.6 acres and 4 properties under redevelopment expected to contain approximately 0.5 million square feet upon completion.

The Company is an internally managed Maryland corporation and elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2010.

Note 2. Significant Accounting Policies

Basis of Presentation.The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include all of the Company’s accounts and its subsidiaries and all intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates.The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Capitalization of Costs.The Company capitalizes costs directly related to the redevelopment, renovation and expansion of its investment in real estate. Costs associated with such projects are capitalized as incurred. If the project is abandoned, these costs are expensed during the period in which the redevelopment, renovation or expansion project is abandoned. Costs considered for capitalization include, but are not limited to, construction costs, interest, real estate taxes and insurance, if appropriate. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress. In the event that the activities to ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. Costs incurred for maintaining and repairing properties, which do not extend their useful lives, are expensed as incurred.

Interest is capitalized based on actual capital expenditures from the period when redevelopment, renovation or expansion commences until the asset is ready for its intended use, at the weighted average borrowing rate during the period.

Investments in Real Estate.Investments in real estate, including tenant improvements, leasehold improvements and leasing costs, are stated at cost, less accumulated depreciation, unless circumstances indicate that the cost cannot be recovered, in which case, an adjustment to the carrying value of the property is made to reduce it to its estimated fair value. The Company also reviews the impact of above and below-market leases,in-place leases and lease origination costs for acquisitions and records an intangible asset or liability accordingly.

Impairment.Carrying values for financial reporting purposes are reviewed for impairment on aproperty-by-property basis whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable. Examples of such events or changes in circumstances may include classifying an asset to be held for sale, changing the intended hold period or when an asset remains vacant

Index to Financial Statements

significantly longer than expected. The intended use of an asset either held for sale or held for use can significantly impact how impairment is measured. If an asset is intended to be held for the long-term, the recoverability is based on the undiscounted future cash flows. If the asset carrying value is not supported on an undiscounted future cash flow basis, then the asset carrying value is measured against the lower of cost or the present value of expected cash flows over the expected hold period. An impairment charge to earnings is recognized for the excess of the asset’s carrying value over the lower of cost or the present values of expected cash flows over the expected hold period. If an asset is intended to be sold, impairment is determined using the estimated fair value less costs to sell. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions, among other things, regarding current and future economic and market conditions and the availability of capital. The Company determines the estimated fair values based on its assumptions regarding rental rates,lease-up and holding periods, as well as sales prices. When available, current market information is used to

9

determine capitalization and rental growth rates. If available, current comparative sales values may also be used to establish fair value. When market information is not readily available, the inputs are based on the Company’s understanding of market conditions and the experience of the Company’s management team. Actual results could differ significantly from the Company’s estimates. The discount rates used in the fair value estimates represent a rate commensurate with the indicated holding period with a premium layered on for risk. There were no0 impairment charges recorded to the carrying values of the Company’s properties during the years ended December 31, 2017, 20162019, 2018 or 2015.

2017.

Loans Held-for-Investment. Loans that are held-for-investment are carried at cost, net of loan fees and origination costs, as applicable, unless the loans are deemed impaired. Impairment occurs when it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of loans that are held-for-investment. The Company evaluates its senior secured loan (the “Senior Secured Loan”), which is classified as held-for-investment, for impairment quarterly. If the Senior Secured Loan is considered to be impaired, the Company records an allowance through the provision for Senior Secured Loan losses to reduce the carrying value of the Senior Secured Loan to the present value of expected future cash flows discounted at the Senior Secured Loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. Actual losses, if any, could differ significantly from the Company’s estimates. There were 0 impairment charges recorded to the carrying value of the Senior Secured Loan during the year ended December 31, 2019 and 2018.
Property AcquisitionsAcquisitions. Effective January 1, 2017, the Company adopted Accounting Standards UpdateCodification (“ASU”ASC”)2017-1, 2017-01, Business Combinations (Topic 805):Clarifying the Definition of a Business,which requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not considered a business. To be a business, the set of acquired activities and assets must include inputs and one or more substantive processes that together contribute to the ability to create outputs. The Company has determined that its real estate property acquisitions will generally be accounted for as asset acquisitions under the clarified definition. Prior to January 1, 2017, the Company generally accounted for property acquisitions as business combinations, in accordance with Accounting Standards Codification (“ASC”("ASC") 805,Business Combinations. Upon acquisition of a property, the Company estimates the fair value of acquired tangible assets (consisting generally of land, buildings and improvements) and intangible assets and liabilities (consisting generally of the above and below-market leases and the origination value of allin-place leases). The Company determines fair values using Level 3 inputs such as replacement cost, estimated cash flow projections and other valuation techniques and applying appropriate discount and capitalization rates based on available market information. Mortgage loans assumed in connection with acquisitions are recorded at their fair value using current market interest rates for similar debt at the date of acquisition. Acquisition-related costs associated with asset acquisitions are capitalized to individual tangible and intangible assets and liabilities assumed on a relative fair value basis and acquisition-related costs associated with business combinations are expensed as incurred. As a result of the adoption of this standard, the Company capitalized $5.5 million in acquisition costs in 2017.

The fair value of the tangible assets is determined by valuing the property as if it were vacant. Land values are derived from current comparative sales values, when available, or management’s estimates of the fair value based on market conditions and the experience of the Company’s management team. Building and improvement values are calculated as replacement cost less depreciation, or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods. The fair value of the above and below-market leases is based on the present value of the difference between the contractual amounts to be received pursuant to the acquired leases (using a discount rate that reflects the risks associated with the acquired leases) and the Company’s estimate of the market lease rates measured over a period equal to the remaining term of the leases plus the term of any below-market fixed rate renewal options. The above and below-market lease values are amortized to rental revenues over the remaining initial term plus the term of any below-market fixed rate renewal options that are considered bargain renewal options of the respective leases. The total net impact to rental revenues due to the amortization of above and below-market leases was a net increase of approximately $2.2$4.7 million, $1.3$3.7 million and $1.9$2.2 million, respectively, for the years ended December 31, 2019, 2018 and 2017, 2016 and 2015.respectively. The origination value ofin-place leases is based on costs to execute similar leases including commissions and other

Index to Financial Statements

related costs. The origination value ofin-place leases also includes real estate taxes, insurance and an estimate of lost rental revenue at market rates during the estimated time required to lease up the property from vacant to the occupancy level at the date of acquisition. The remaining weighted average lease term related to these intangible assets and liabilities as of December 31, 20172019 is 9.38.0 years. As of December 31, 20172019 and 2016,2018, the Company’s intangible assets and liabilities, including properties held for sale (if any), consisted of the following (dollars in thousands):

   December 31, 2017  December 31, 2016 
   Gross  Accumulated
Amortization		  Net  Gross  Accumulated
Amortization		  Net 

In-place leases

  $71,502  $(45,885)  $25,617  $58,112  $(37,664)  $20,448 

Above-market leases

   4,527   (3,695)   832  4,468   (3,319)   1,149 

Below-market leases

   (30,386)   8,025   (22,361)   (9,133)   5,648   (3,485) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  $45,643  $(41,555)  $4,088  $53,447  $(35,335)  $18,112 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

10

December 31, 2019December 31, 2018
GrossAccumulated
Amortization		NetGrossAccumulated
Amortization		Net
In-place leases$84,425  $(59,504) $24,921  $75,101  $(51,239) $23,862  
Above-market leases4,169  (3,853) 316  4,169  (3,610) 559  
Below-market leases(44,099) 15,972  (28,127) (34,485) 11,392  (23,093) 
Total$44,495  $(47,385) $(2,890) $44,785  $(43,457) $1,328  
Projected net amortization of the intangible assets and liabilities for the next five years and thereafter as of December 31, 20172019 is as follows (dollars in thousands):

2018

  $5,218 

2019

   3,399 

2020

   2,129 

2021

   1,446 

2022

   733

Thereafter

   (8,837) 
  

 

 

 

Total

  $4,088 
  

 

 

 

2020$2,887  
20211,742  
2022949  
2023277  
2024(131) 
Thereafter(8,614) 
Total$(2,890) 
Depreciation and Useful Lives of Real Estate and Intangible Assets.Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets or liabilities. The following table reflects the standard depreciable lives typically used to compute depreciation and amortization. However, such depreciable lives may be different based on the estimated useful life of such assets or liabilities.

Description

Description

Standard Depreciable Life

LandNot depreciated
Building40 years
Building Improvements405-40 years
Building Improvements5-40 years
Tenant ImprovementsShorter of lease term or useful life
Leasing CostsLease term
In-place leasesLease term
Above/Below-Market LeasesLease term

Discontinued Operations.The Company considers a property to be classified as discontinued operations when it meets the criteria established under ASU2014-08,Presentation of Financial Statements(Topic 205) andProperty, Plant and Equipment(Topic 360),Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Disposals that represent a strategic shift that should have or will have a major effect on the Company’s operations and financial results qualify as discontinued operations.

Held for Sale Assets.The Company considers a property to be held for sale when it meets the criteria established under ASC 360,Property, Plant, and Equipment(Note 5) (See “Note 5 – Held for Sale/Disposed Assets”). Properties held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they are held for sale.

Index to Financial Statements

Cash and Cash Equivalents.Cash and cash equivalents consists of cash held in a major banking institution and other highly liquid short-term investments with original maturities of three months or less. Cash equivalents are generally invested in U.S. government securities, government agency securities or money market accounts.

Restricted Cash.Restricted cash includes cash held in escrow in connection with property acquisitions and reserves for certain capital improvements, leasing, interest and real estate tax and insurance payments as required by certain mortgage loan obligations.

11

The following summarizes the reconciliation of cash and cash equivalents and restricted cash as presented in the accompanying consolidated statements of cash flows:

   For the Year Ended December 31, 
   2017   2016  2015 

Beginning

     

Cash and cash equivalents at beginning of year

  $14,208   $22,450   190,601 

Restricted cash

   4,270    2,658   6,963 
  

 

 

   

 

 

  

 

 

 

Cash and cash equivalents and restricted cash

   18,478    25,108   197,564 

Ending

     

Cash and cash equivalents at end of year

   35,710    14,208   22,450 

Restricted cash

   7,090    4,270   2,658 
  

 

 

   

 

 

  

 

 

 

Cash and cash equivalents and restricted cash

   42,800    18,478   25,108 
  

 

 

   

 

 

  

 

 

 

Net increase (decrease) in cash and cash equivalents and restricted cash

  $24,322   $(6,630)   (172,456) 
  

 

 

   

 

 

  

 

 

 

flows (dollars in thousands):

For the Year Ended December 31,
201920182017
Beginning
Cash and cash equivalents at beginning of year$31,004  $35,710  $14,208  
Restricted cash3,475  7,090  4,270  
Cash and cash equivalents and restricted cash34,479  42,800  18,478  
Ending
Cash and cash equivalents at end of year110,082  31,004  35,710  
Restricted cash2,657  3,475  7,090  
Cash and cash equivalents and restricted cash112,739  34,479  42,800  
Net increase (decrease) in cash and cash equivalents and restricted cash$78,260  $(8,321) $24,322  

Revenue Recognition.The Company records rental revenue from operating leases on a straight-line basis over the term of the leases and maintains an allowance for estimated losses that may result from the inability of its tenants to make required payments. If tenants fail to make contractual lease payments that are greater than the Company’s allowance for doubtful accounts, security deposits and letters of credit, then the Company may have to recognize additional doubtful account charges in future periods. The Company monitors the liquidity and creditworthiness of its tenants on anon-going basis by reviewing their financial condition periodically as appropriate. Each period the Company reviews its outstanding accounts receivable, including straight-line rents, for doubtful accounts and provides allowances as needed. The Company also records lease termination fees when a tenant has executed a definitive termination agreement with the Company and the payment of the termination fee is not subject to any conditions that must be met or waived before the fee is due to the Company. If a tenant remains in the leased space following the execution of a definitive termination agreement, the applicable termination will be deferred and recognized over the term of such tenant’s occupancy.

Tenant expense reimbursement income includes payments and amounts due from tenants pursuant to their leases for real estate taxes, insurance and other recoverable property operating expenses and is recognized as revenues during the same period the related expenses are incurred.

As of December 31, 20172019 and 2016,2018, approximately $23.0$27.4 million and $21.6$25.7 million, respectively, of straight-line rent and accounts receivable, net of allowances of approximately $0.1$0.2 million and $0.4 million as offor both years ended December 31, 20172019 and 2016,2018, respectively, were included as a component of other assets in the accompanying consolidated balance sheets.

Effective January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the Company's adoption.  Under the modified retrospective approach, an entity may also elect to apply this standard to either (i) all contracts as of January 1, 2018 or (ii) only to contracts that were not completed as of January 1, 2018.  A completed contract is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP that was in effect before the date of initial application. The Company elected to apply this standard only to contracts that were not completed as of January 1, 2018.  Based on the Company’s evaluation of contracts within the scope of ASU No. 2014-09, the guidance impacts revenue related to the sales of real estate, which is evaluated in conjunction with ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20") (see below).
Effective January 1, 2018, the Company adopted the guidance of ASC 610-20, which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business. Generally, the Company’s sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610-20. ASC 610-20 refers to the revenue recognition principles under ASU 2014-09 (see above). Under ASC 610-20, if the Company determines it does not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, the Company will derecognize the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer. As a result of adoption of the standard, there was no material impact to the Company’s consolidated financial statements.
Deferred Financing Costs.Costs incurred in connection with financings are capitalized and amortized to interest expense using the effective interest method over the term of the related loan. Deferred financing costs associated with the Company's revolving credit facility are classified as an asset and deferred financing costs associated with debt liabilities are reported as a direct deduction from the carrying amount of the debt liability in the

Index to Financial Statements

accompanying consolidated balance sheets. Deferred

12

financing costs related to the revolving credit facility and debt liabilities are shown at cost, net of accumulated amortization in the aggregate of approximately $5.7$8.3 million and $4.5$6.9 million as of December 31, 20172019 and 2016,2018, respectively.

Mortgage Premiums.Mortgage premiums represent the excess of the fair value of debt assumed over the principal value of debt assumed in connection with property acquisitions. The mortgage premiums are being amortized to interest expense over the term of the related debt instrument using the effective interest method. As of December 31, 2017 and 2016, the mortgage premiums were fully amortized.

Income Taxes.The Company elected to be taxed as a REIT under the Code and operates as such beginning with its taxable year ended December 31, 2010. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If it fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants it relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company believes it is organized and operates in such a manner as to qualify for treatment as a REIT.

ASC740-10,Income Taxes, (“ASC 740-10”), provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC740-10 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are“more-likely-than-not” “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet themore-likely-than-not threshold are recorded as a tax expense in the current year. As of December 31, 20172019 and 2016,2018, the Company did not0t have any unrecognized tax benefits and does not believe that there will be any material changes in unrecognized tax positions over the next 12 months. The Company’s tax returns are subject to examination by federal, state and local tax jurisdictions beginning with the 2010 calendar year.

On December 22, 2017, President Trump signed into law H.R. 1, informally titled the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their stockholders. Among the changes made by the TCJA are permanently reducing the generally applicable corporate tax rate, generally reducing the tax rate applicable to individuals and othernon-corporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026, eliminating or modifying certain previously allowed deductions (including substantially limiting interest deductibility and, for individuals, the deduction fornon-business state and local taxes), and, for taxable years beginning after December 31, 2017 and before January 1, 2026, providing for preferential rates of taxation through a deduction of up to 20% (subject to certain limitations) on most ordinary REIT dividends and certain trade or business income ofnon-corporate taxpayers. The TCJA also imposes new limitations on the deduction of net operating losses, which may result in the Company having to make additional taxable distributions to our stockholders in order to comply with REIT distribution requirements or avoid taxes on retained income and gains. The effect of the significant changes made by the TCJA is highly uncertain, and administrative guidance will be required in order to fully evaluate the effect of many provisions. As of December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the TCJA and continues to account for those items based on its existing accounting under ASC 740. The Company is currently assessing the impact of these changes on its consolidated financial statements and notes to its consolidated financial statements.

Stock-Based Compensation and Other Long-Term Incentive Compensation.The Company follows the provisions of ASC 718,Compensation-Stock Compensation, to account for its stock-based compensation plan, which requires that the compensation cost relating to stock-based payment transactions be recognized in the

Index to Financial Statements

financial statements and that the cost be measured on the fair value of the equity or liability instruments issued. The Company has adopted the Amended and Restated 2010Company's 2019 Equity Incentive Plan which(the "2019 Plan") provides for the grant of restricted stock awards, performance share awards, unrestricted shares or any combination of the foregoing. Stock-based compensation is recognized as a general and administrative expense in the accompanying consolidated statements of operations and measured at the fair value of the award on the date of grant. The Company estimates the forfeiture rate based on historical experience as well as expected behavior. The amount of the expense may be subject to adjustment in future periods depending on the specific characteristics of the stock-based award.

In addition, the Company has awarded long-term incentive target awards (the “Performance Share awards”) under its Amended and Restated Long-Term Incentive Plan (as amended and restated the "Amended LTIP"), which the Company amended and restated on January 8, 2019, to its executives that may be payable in shares of the Company’s common stock after the conclusion of eachpre-established performance measurement period, which is generally three years. The amount that may be earned under the Performance Share awards is variable depending on the relative total shareholder return of the Company’s common stock as compared to the total shareholder return of the MSCI U.S. REIT Index (RMS) and the FTSE NAREITNareit Equity Industrial Index over thepre-established performance measurement period. TheUnder the Amended LTIP, each participant’s Performance Share award granted on or after January 1, 2019 will be expressed as a number of shares of common stock and settled in shares of common stock. Target awards were previously expressed as a dollar amount and settled in shares of common stock. Commencing with Performance Share awards granted on or after January 1, 2019, the grant date fair value of the Performance Share awards will be determined under current accounting treatment using a Monte Carlo simulation model on the date of grant and recognized on a straight-line basis over the performance period. For Performance Share awards granted prior to January 1, 2019, the Company estimates the fair value of the Performance Share awards using a Monte Carlo simulation model on the date of grant and at each reporting period. The Performance Share awards granted prior to January 1, 2019 are recognized as compensation expense over the requisite performance period based on the fair value of the Performance Share awards at the balance sheet date, and varywhich varies quarter to quarter based on the Company’s relative share price performance.

performance, and are included as a component of Performance Share awards payable in the accompanying consolidated balance sheets.

Use of Derivative Financial Instruments.ASC 815,Derivatives and Hedging(Note 8) (See “Note 9 – Derivative Financial Instruments”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why the Company uses derivative instruments, (b) how the Company accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments.

13

The Company records all derivatives on the accompanying consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

As of December 31, 2017,2019, the Company had three2 interest rate caps to hedge the variable cash flows associated with its existing $150.0$100.0 million of variable-rate term loans.loan. The caps have a notional value of $150.0$100.0 million and will effectively cap the annual interest rate at 4.0% plus 1.30%1.20% to 1.85%1.70%, depending on leverage, with respect to $50.0 million for the period from December 1, 2014 (effective date) to May 1,4, 2021 $50.0 million for the period from September 1, 2015 (effective date) to April 1, 2019, and $50.0 million for the period from September 1, 2015 (effective date) to February 3, 2020. The Company records all derivative instruments on a gross basis in other assets on the accompanying consolidated balance sheets, and accordingly, there are no offsetting amounts that net assets against liabilities. As of December 31, 20172019 and 2016,2018, the fair value of the interest rate caps was approximately $30,000$0 and $0.3 million,$25,000, respectively.

Index to Financial Statements

Fair Value of Financial Instruments.ASC 820,Fair Value Measurements and Disclosures (See “Note 10 – Fair Value Measurements”), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also provides guidance for using fair value to measure financial assets and liabilities. ASC 820 requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).

New Accounting Standards.In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”(the “FASB”) issuedASU 2014-09, which created ASC Topic 606, Revenue from Contracts with Customers,whichNo. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is their final standard on revenue from contracts with customers. ASU2014-09 outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. The effective date of ASU2014-09 was deferred by the issuance of ASU2015-14,Revenue from Contracts with Customers(Topic 606): Deferral of the Effective Date,by one year to make the guidance of ASU2014-09 effective for annual reporting periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted but not prior to the original effective date, which was for annual reporting periods beginning after December 15, 2016. The Company will adopt the guidance effective January 1, 2018. In March 2016, the FASB issued ASU2016-08,Revenue from Contracts with Customers (Topic 606):Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies how to apply the implementation guidance on principal versus agent considerations related to the sale of goods or services to a customer as updated by ASU2014-09. In April 2016, the FASB issued ASU2016-10,Revenue from Contracts with Customers (Topic 606):Identifying Performance Obligations and Licensing, which clarifies two aspects of Topic 606: (1) identifying performance obligations and (2) the licensing implementation guidance, while retaining the related principles for those areas. The effective date and transition requirements for ASU2016-10 are the same as the effective date and transition requirements in ASU2015-14. In May 2016, the FASB issuedASU 2016-12,Revenue from Contracts with Customers(Topic 606): Narrow-Scope Improvements and Practical Expedients, which makes narrow scope amendments to Topic 606 including implementation issues on collectability,non-cash consideration and completed contracts at transition. In December 2016, the FASB issued ASU2016-20,Technical Corrections andImprovements to Topic 606, Revenue fromContracts with Customers, which make additional narrow scope amendments to Topic 606 including loan guarantee fees, impairment testing of contract costs, provisions for losses on construction-type and production-type contracts. The FASB allows two adoption methods under ASU2014-09. Under one method, a company will apply the rules to contracts in all reporting periods presented, subject to certain allowable exceptions. Under the other method, a company will apply the rules to all contracts existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change and providing additional disclosures comparing results to previous rules (“modified retrospective method”). The Company will adopt these updates beginning with the first quarter of its fiscal year 2018 and anticipates doing so using the modified retrospective method. The Company has completed the process to evaluate the impact of the adoption of ASU2014-09 on historical contracts and other arrangements, including identifying potential differences that will result from applying the requirements of the new guidance. As a result of the review of revenue arrangements, the Company does not anticipate that the adoption will have a material impact on its financial position or results of operations, particularly as it relates to the amount and timing of historical real estate sales contracts and associated gain recognitions. The Company has also drafted revised accounting policies affected by the standard, assessed the redesign of internal controls, as well as evaluated the expanded disclosure requirements. The Company is also continuing to assess the potential effects that this new standard is expected to have on its consolidated financial statements as it relates to its leasing arrangements with its tenants and in concert with its assessment and anticipated adoption of the new leasing guidance under ASU2016-02,Leases(see below). The Company does not expect that this change will have a material effect on its financial position or results of operations. The Company continues to evaluate other areas of the standard and is currently assessing the impact on its consolidated financial statements and notes to its consolidated financial statements and cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.

Index to Financial Statements

In February 2016, the FASB issued ASU2016-02,Leases (Topic 842). The ASU increases transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard requires thatnon-lease components, such as tenant expense reimbursement revenues, be accounted for in accordance with ASU2014-09,Revenue from Contracts with Customers (see above), which could change the classification and timing of itsnon-lease components. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those years,fiscal years. Early adoption of ASU No. 2016-02 was permitted. ASU No. 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. Upon adoption of ASU No. 2016-02 on January 1, 2019, the Company adopted the package of practical expedients for all leases that commenced before the effective date of January 1, 2019. Accordingly, the Company did not 1) reassess whether any expired or existing contracts are or contain leases, 2) reassess the lease classification for any expired or existing lease, and 3) reassess initial direct costs for any existing leases. The Company did not elect the practical expedient related to using hindsight to reevaluate the lease term.


ASU No. 2016-02 requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and 2) a right-of-use asset (“ROU asset”), which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the Company wouldlease term. ASU No. 2016-02 also requires lessees to classify leases as either a finance or operating lease based on whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification is used to evaluate whether the lease expense should be recognized based on an effective interest method as a finance lease or on a straight-line basis over the first quarterterm of 2019, and early adoption is permitted.the lease as an operating lease. The Company is currently assessing the potential changeslessee of one office space, which was classified as an operating lease under Topic 840. As the Company elected the package of practical expedients as described above, the classification of existing leases was not reassessed and as such, this lease continues to be accounted for as an operating lease.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements (“ASU No. 2018-11”), which provides lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue recognition standard (Topic 606) and if certain conditions are met. Upon adoption of ASU No. 2016-02, the Company adopted this practical expedient, specifically related to its tenant reimbursements which would otherwise be accounted for under the new revenue recognition standard. The Company believes the two conditions have been met for tenant reimbursements as 1) the timing and pattern of transfer of the nonlease components
14

and associated lease components are the same and 2) the non-lease component is not the predominant component in the arrangement. In addition, ASU No. 2018-11 provides an additional optional transition method to allow entities to apply the new lease accounting standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. An entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new lease accounting standard will continue to be reported under the current lease accounting standards of Topic 840. The Company adopted this transition method upon adoption of ASU No. 2016-02 on January 1, 2019. There was no cumulative-effect adjustment to the opening balance of retained earnings upon adoption.

In December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors (“ASU No. 2018-20”), which permits lessors, as an accounting policy election, to not evaluate whether certain sales taxes andother similar taxes are lessor costs or lessee costs and instead to account for these costs as if they were lessee costs. In addition,ASU No. 2018-20 requires lessors to 1) exclude lessor costs paid directly by lessees to third parties on the lessor’s behalf fromvariable payments and 2) include lessor costs that are reimbursed by the lessee in the measurement of variable lease revenueand the associated expense. The amendments also clarify that lessors are required to allocate the variable payments to the leaseand non-lease components and follow the recognition guidance in Topic 842 for the lease component and other applicableguidance, such changes will haveas ASU No. 2014-09, for the non-lease component.

As a result of the adoption of ASU No. 2016-02, ASU No. 2018-11, and ASC No. 2018-20, there was no material impact to the Company’s consolidated financial statements as a lessor or lessee. In accordance with the guidance, the Company has combined rental revenues and tenant expense reimbursements on the Company’s consolidated statements of operations. The Company does not currently capitalize internal leasing costs. In addition, on January 1, 2019, the Company recognized a lease liability of approximately $0.9 million and a related ROU asset of approximately $0.8 million on its consolidated financial statements and notes to its consolidated financial statements.

In August 2016, the FASB issued ASU2016-15,Statement of Cash Flows (Topic 230):Classification of Certain Cash Receipts and Cash Payments, which provides clarified guidancebalance sheets, based on the presentation and classificationpresent value of certain cash receipts and cashlease payments for the remaining term of the Company’s corporate office lease, which was approximately 3.5 years as of the adoption date. As the rate implicit in the statementlease was not readily determinable, the discount rate applied to measure the lease liability and ROU asset was based on the Company’s incremental borrowing rate of cash flows. ASU2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted. The Company is currently assessing the impact2.70% as of adopting ASU2016-15 on its consolidated financial statements and notes to its consolidated financial statements, but does not expect the adoption date. The lease liability is included as a component of ASU2016-15 to haveaccounts payable and other liabilities and the ROU asset is included as a material impact.

In November 2016, the FASB issued ASU2016-18,Statementcomponent of Cash Flows (Topic 230):Restricted Cash, which requires that a statement of cash flows explain the change during the periodother assets in the totalaccompanying consolidated balance sheets. All operating lease expense is recognized on a straight-line basis over the lease term. As of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The Company elected to early adopt the provisions of ASU2016-18 as of March 31, 2017, and has revised its consolidated statements of cash flows for the years ended December 31, 20162019, the lease liability was approximately $0.6 million and 2015 to reflect amounts described as restricted cash and restricted cash equivalents included with cash and cash equivalents in the reconciliation of beginning of year and end of year total amounts shown on the consolidated statements of cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. A reconciliation of cash and cash equivalents and restricted cash as presented on the consolidated balance sheets to the consolidated statements of cash flows is included in the significant accounting policies above.

ROU asset was approximately $0.6 million.

Segment Disclosure.ASC 280,Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has determined that it has one1 reportable segment, with activities related to investing in real estate. The Company’s investments in real estate are geographically diversified and the chief operating decision makers evaluate operating performance on an individual asset level. As each of the Company’s assets has similar economic characteristics, the assets have been aggregated into one1 reportable segment.

Note 3. Concentration of Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company may maintain deposits in federally insured financial institutions in excess of federally insured limits. However, the Company’s management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

As of December 31, 2017,2019, the Company owned 5562 buildings aggregating approximately 3.13.6 million square feet and four9 improved land parcels consisting of approximately 23.348.7 acres located in Northern New Jersey/New York City, which accounted for a combined percentage of approximately 25.6% of its annualized base rent, and 35 buildings aggregating approximately 2.6 million square feet and three land parcels consisting of

Index to Financial Statements

approximately 8.0 acres located in Los Angeles, which accounted for a combined percentage of approximately 18.5%30.9% of its annualized base rent. Such annualized base rent percentages are based on contractual base rent from leases in effect as of December 31, 2017,2019, excluding any partial or full rent abatements.

Other real estate companies compete with the Company in its real estate markets. This results in competition for tenants to occupy space. The existence of competing properties could have a material impact on the Company’s ability to lease space and on the level of rent that can be achieved. The Company had no tenants that accounted for greater than 10% of its rental revenues for the years ended December 31, 2017, 20162019, 2018 and 2015.

2017.

Note 4. Investments in Real Estate

During the year ended December 31, 2017,2019, the Company acquired 3517 industrial buildings containing approximately 1.70.7 million square feet and five4 improved land parcels containing approximately 25.222.6 acres. The total aggregate initial investment, including acquisition costs, was approximately $319.7$289.6 million, of which $211.2$224.1 million was recorded to land, $92.6$53.9 million to
15

buildings and improvements, $15.9$11.6 million to intangible assets and $21.5assets. Additionally, the Company assumed $10.0 million toin intangible liabilities.

The following table sets forth the wholly-owned industrial properties the Company acquired during the year ended December 31, 2017:

Property Name

  

Location

  

Acquisition Date

  

Number of

Buildings

   

Square Feet

   

Purchase Price

(in thousands)  1

 
Acacia  Compton, CA  January 25, 2017   1    45,776   $7,103 
637 S. Lucile  Seattle, WA  February 3, 2017   1    45,320    7,750 
Lynwood2  Lynwood, CA  April 20, 2017   3    477,153    31,378 
West Side Ave  North Bergen, NJ  April 20, 2017   1    126,491    14,000 
Hanford  Seattle, WA  April 21, 2017   1    34,983    5,940 
2920 V Street  Washington, D.C.  May 10, 2017   1    21,666    3,727 
Avenue A  Carlstadt, NJ  May 10, 2017   4    32,676    12,000 
South Main III  Gardena, CA  June 2, 2017   1    114,061    24,700 
Frelinghuysen3  Newark, NJ  June 29, 2017   —      —      16,250 
Stockton4  Newark, NJ  June 30, 2017   —      —      13,200 
Telegraph  Santa Fe Springs, CA  July 6, 2017   2    86,814    14,930 
Dawson  Seattle, WA  July 7, 2017   1    13,176    4,000 
Walnut  Compton, CA  July 21, 2017   1    57,520    9,352 
NW 70th IV  Miami, FL  August 4, 2017   1    15,965    2,515 
Kero Road 5  Carlstadt, NJ  September 1, 2017   2    43,407    13,500 
Hotchkiss  Fremont, CA  September 28, 2017   1    40,830    7,275 
104th St  Los Angeles, CA  October 19, 2017   1    20,055    4,750 
NW 94th Ave  Doral, FL  October 23, 2017   1    38,430    6,759 
NW 70th V6  Miami, FL  October 30, 2017   1    59,400    8,400 
2315 E Dominguez7  Los Angeles, CA  November 30, 2017   —      —      12,860 
1855 W 139th St  Carson, CA  December 15, 2017   2    230,891    37,550 
Hawthorne  Hawthorne, CA  December 19, 2017   8    152,025    27,600 
New Dutch  Fairfield, NJ  December 20, 2017   1    50,400    7,200 
      

 

 

   

 

 

   

 

 

 

Total

       35    1,707,039   $292,739 
      

 

 

   

 

 

   

 

 

 

1Excludes intangible liabilities and assumed mortgage premiums, if any. The total aggregate investment was approximately $319.7 million, including $5.5 million in closing costs and acquisition costs.
2Includes approximately one million square feet of land, which is 100% ground leased on a long-term basis to two tenants, and contains two industrial distribution buildings and one rail transshipment facility.
3Represents an improved land parcel containing approximately 10.6 acres.
4Represents an improved land parcel containing approximately 7.2 acres.
5Also includes an improved land parcel containing approximately 1.1 acres.
2019:

Index to Financial Statements
6Also includes an improved land parcel containing approximately 0.9 acres.
7Represents an improved land parcel containing approximately 5.4 acres.

Property NameLocationAcquisition Date
Number of
Buildings
Square Feet
Purchase Price
(in thousands) 1
49th StreetQueens, NYFebrurary 12, 20191  19,000  $24,017  
81 N Hackensack 2
Kearny, NJMarch 8, 2019—  —  25,000  
48 3rd and 286 Central 3
Kearny, NJMarch 29, 20191  28,124  14,085  
Minnesota and TennesseeSan Francisco, CAMay 28, 20192  119,089  47,775  
51 Kero 4
Carlstadt, NJAugust 7, 2019—  —  4,025  
AndersonLos Angeles, CAAugust 19, 20195  53,016  18,100  
Auburn 400Auburn, WAAugust 21, 20191  70,345  9,450  
MorganBrooklyn, NYAugust 29, 20192  195,598  80,500  
20th StreetOakland, CAAugust 30, 20191  92,884  23,752  
SlausonSanta Fe Springs, CAAugust 30, 20192  29,927  5,331  
East Marginal 5
Seattle, WANovember 15, 2019—  —  2,850  
WhelanEast Rutherford, NJDecember 13, 20191  50,305  12,000  
917 ValleyPuyallup, WADecember 19, 20191  40,816  6,725  
Total17  699,104  $273,610  


1The total aggregate investment was approximately $289.6 million, including $6.0 million in closing costs and acquisition costs.
2Represents an improved land parcel containing approximately 16.8 acres.
3Also includes an improved land parcel containing approximately 2.9 acres.
4Represents an improved land parcel containing approximately 2.0 acres.
5Represents an improved land parcel containing approximately 0.9 acres.

The Company recorded revenues and net income for the year ended December 31, 20172019 of approximately $7.3$7.6 million and $3.0 million, respectively, related to the 20172019 acquisitions.

During the year ended December 31, 2016,2018, the Company acquired 1917 industrial buildings containing approximately 853,0001.0 million square feet and two5 improved land parcels containing approximately 17.9 acres.19.9 acres, including 2 buildings and 1 improved land parcel under redevelopment that upon completion will contain approximately 0.5 million square feet with a total expected investment of approximately $112.9 million (unaudited), including redevelopment costs of approximately $36.8 million. The total aggregate initial investment, including acquisition costs, was approximately $130.9$227.1 million, of which $65.9$154.5 million was recorded to land, $55.6$64.0 million to buildings and improvements, $9.4$8.6 million to intangible assets and $1.6assets. Additionally, the Company assumed $4.7 million toin intangible liabilities.

The following table sets forth the wholly-owned industrial properties the Company acquired during the year ended December 31, 2016:

Property Name

  

Location

  

Acquisition Date

  

Number of

Buildings

   

Square Feet

   

Purchase Price

(in thousands)  1

 

4930 3rd Avenue South

  Seattle, WA  January 25, 2016   1    35,480   $6,500 

221 Michele

  South San Francisco, CA  March 4, 2016   1    30,000    5,250 

12950 SW South River

  Medley, FL  March 11, 2016   1    60,000    6,000 

901 North2

  Elizabeth, NJ  March 24, 2016   —      —      9,283 

Lund

  Auburn, WA  April 21, 2016   1    66,942    7,350 

NW 70th II

  Miami, FL  May 4, 2016   1    53,558    6,355 

Denver

  Seattle, WA  May 6, 2016 �� 1    24,917    4,741 

Wilson

  Newark, NJ  June 10, 2016   1    16,600    2,500 

New Ridge 3

  Hanover, MD  July 12, 2016   —      —      8,200 

Hampton Overlook

  Capitol Heights, MD  August 4, 2016   3    134,919    14,104 

Schoolhouse

  Somerset, NJ  September 1, 2016   1    86,400    9,072 

709 Hindry

  Inglewood, CA  September 19, 2016   1    22,190    5,150 

West 140th

  San Leandro, CA  October 20, 2016   2    100,494    15,875 

74th North Bergen

  North Bergen, NJ  November 1, 2016   1    25,041    4,750 

NW 70th III

  Miami, FL  November 2, 2016   1    55,000    6,100 

Paterson Plank

  Carlstadt, NJ  November 16, 2016   1    31,415    5,000 

NW 74th

  Miami, FL  December 16, 2016   1    64,575    6,288 

Business Parkway

  Lanham, MD  December 21, 2016   1    45,000    6,700 
      

 

 

   

 

 

   

 

 

 

Total

       19    852,531   $129,218 
      

 

 

   

 

 

   

 

 

 

1Excludes intangible liabilities and assumed mortgage premiums, if any. The total aggregate investment was approximately $130.9 million.
2Represents an improved land parcel containing approximately 4.5 acres.
3Represents an improved land parcel containing approximately 13.4 acres.

2018:

16

Property NameLocationAcquisition Date
Number of
Buildings
Square Feet
Purchase Price
(in thousands) 1
VermontTorrance, CAJanuary 31, 20181  99,629  $17,500  
WoodsideQueens, NYMarch 6, 20181  83,294  25,170  
1st Avenue SouthSeattle, WAMarch 6, 20181  234,720  42,000  
Wicks BlvdSan Leandro, CAApril 27, 20181  11,300  2,600  
85 Doremus 2
Newark, NJMay 7, 2018—  —  6,300  
East ValleyRenton, WAMay 7, 20181  39,005  5,950  
Merced 3
San Leandro, CAAugust 2, 20184  225,344  36,000  
San ClementeHayward, CASeptember 7, 20181  54,000  9,000  
Whitney 4
San Leandro, CASeptember 17, 20183  128,073  22,790  
CommerceCarlstadt, NJOctober 17, 20181  24,000  3,480  
Kent 192 5
Seattle, WAOctober 24, 2018—  —  12,434  
6th AveSeattle, WAOctober 31, 20181  50,270  12,558  
Walnut IICompton, CANovember 7, 20181  60,040  11,108  
Shoemaker 6
Santa Fe Springs, CANovember 14, 2018—  —  6,400  
Hotchkiss IIFremont, CADecember 20, 20181  29,214  6,200  
Total17  1,038,889  $219,490  

1The total aggregate investment was approximately $227.1 million, including $2.9 million in closing costs and acquisition costs.
2Represents an improved land parcel containing approximately 3.5 acres.
3Also includes an improved land parcel containing approximately 1.2 acres.
4Also includes improved land parcel containing approximately 0.2 acres.
5Represents an improved land parcel containing approximately 12.7 acres.
6Represents an improved land parcel containing approximately 2.3 acres.
The Company recorded revenues and net income for the year ended December 31, 20162018 of approximately $4.2$4.8 million and $1.1$1.7 million, respectively, related to the 20162018 acquisitions.

The above assets and liabilities were recorded at fair value, which uses Level 3 inputs. The properties were acquired from unrelated third parties using existing cash on hand, proceeds from property sales, issuance of common stock and borrowings on the revolving credit facility. Effective January 1, 2017,

As of December 31, 2019, the Company adopted ASU2017-1,Business Combinations (Topic 805):Clarifying the Definitionhas 4 properties under redevelopment that upon completion will contain approximately 0.5 million square feet with a total expected investment of a Business under which property acquisitions are generally accounted for as asset acquisitions resulting in the capitalizationapproximately $120.4 million, including redevelopment costs of acquisition costs as part of the purchase price of the acquisition, instead of being expensed as incurred. Prior to January 1, 2017 the Company accounted for property acquisitions as business combinations, in accordance with ASC 805,Business Combinations, resulting in the expense of acquisition costs as incurred.

approximately $52.4 million. During 2016,2019, the Company completed redevelopment of its South Main1775 NW 70th Avenue property in Carson, California.Miami, Florida. The Company demolished three buildings totalingexecuted a full-building five-year lease stabilizing the approximately 186,000 square feet and constructed a new front-

Index to Financial Statements

load industrial distribution building containing approximately 210,000 square feet and renovated an existing approximately 34,00065,000 square foot office building.redevelopment property. The total investment was approximately $10.0 million. During 2019, the Company also completed redevelopment and sold its 10100 NW 25th Street property in Miami, Florida for a sales price of approximately $14.0 million, resulting in a gain of approximately $1.8 million (See "Note 5 - Held for Sale/Disposed Assets"). The property was vacant. The Company capitalized interest associated with redevelopment and expansion activities of approximately $0, $0.6$3.2 million, $2.5 million and $0.3 million,$0, respectively, during the years ended December 31, 2017, 20162019, 2018 and 2015. The redevelopment cost was approximately $17.8 million for a total investment of approximately $39.3 million, excluding approximately $2.3 million of intangible liabilities.

Pro Forma Financial Information:

The following supplementary pro forma financial information presents the results of operations of the Company for the years ended December 31, 2017 and 2016 as if all of the Company’s acquisitions during the year ended December 31, 2017 occurred on January 1, 2016. The following pro forma results for the years ended December 31, 2017 and 2016 have been presented for comparative purposes only and are not necessarily indicative of the results of operations that would have actually occurred had all transactions taken place on January 1, 2016, or of future results of operations (dollars in thousands, except per share data).

   For the Year Ended
December 31,		 
   2017   2016 
   (Unaudited) 

Total revenues

  $142,495   $125,705 

Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends

   52,962    18,416 

Basic and diluted net income available to common stockholders per share, net of redemption of preferred stock and preferred stock dividends

  $1.03   $0.41 

2017.

Note 5. Held for Sale/Disposed Assets

The Company considers a property to be held for sale when it meets the criteria established under ASC 360,Property, Plant, and Equipment. Properties held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they are held for sale. As of December 31, 2017,2019, the Company did not0t have any properties held for sale.

During the year ended December 31, 20172019, the Company sold one1 property located in the Los Angeles market for a sales price of approximately $25.3$12.4 million, resulting in a gain of approximately $10.1$4.5 million, 1 redevelopment property in the Miami market for a sales price of approximately $14.0 million, resulting in a gain of approximately $1.8 million, and three2 properties located in the Washington, D.C. market for an aggregate sales price of approximately $52.0$22.5 million, resulting in an aggregate gain of approximately $20.5$3.1 million. During the year ended December 31, 20162018, the Company sold one1 property located in the San Francisco Bay Area
17

Los Angeles market for a sales price of approximately $8.2$33.2 million, resulting in a gain of approximately $2.7$12.2 million, one2 properties in the Miami market for an aggregate sales price of approximately $28.6 million, resulting in an aggregate gain of approximately $13.1 million and 1 property in the Washington, D.C. market for a sales price of approximately $8.2$20.3 million, resulting in a gain of approximately $2.5 million and one property located in the Miami market for a sales price of approximately $6.1 million, resulting in a gain of approximately $1.9$3.3 million.

Note 6. Debt

On July 14, 2017,Senior Secured Loan

As of December 31, 2019, the Company issued inhad a private placement $100.0 million of senior unsecured notesSenior Secured Loan outstanding with a seven-yeartwo-year term that bearbears interest at a fixed annual interest rate of 3.75%8.0% and maturematures in July 2024 (the “July 2024May 2020. The Senior Unsecured Notes”). NetSecured Loan is secured by a portfolio of 7 improved land parcels primarily located in Newark, New Jersey. NaN of the properties securing the Senior Secured Loan may be put to the Company as partial repayment of the Senior Secured Loan. This property may be called by the Company as partial repayment of the Senior Secured Loan at a previously agreed upon value. In addition, per the terms of the Senior Secured Loan, the borrower may repay the loan at any time with either cash or deed in lieu, with the deed subject to the Company’s approval. During the year ended December 31, 2019, the Company acquired 2 properties that were securing the Senior Secured Loan for a previously agreed upon aggregate purchase price which approximated their fair value of approximately $39.1 million, which resulted in an approximately $39.1 million reduction in the amount outstanding under the Senior Secured Loan. As of December 31, 2019 and 2018, there was approximately $15.9 million and $54.5 million, respectively, net of deferred loan fees of approximately $0.1 million and $0.5 million, respectively, outstanding on the Senior Secured Loan and approximately $0.3 million and $0.4 million, respectively, of interest receivable outstanding on the Senior Secured Loan. Interest receivable is included as a component of other assets in the accompanying consolidated balance sheets.
Note 7. Debt
On September 12, 2019, the Company entered into a note purchase agreement with certain institutional investors in a private placement transaction pursuant to which it issued $100.0 million of ten-year 3.14% senior unsecured notes on December 2, 2019. The proceeds from the issuance were used to redeem all 1,840,000 outstanding shares of 7.75% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”), to repay the previously outstanding borrowings$50.0 million term loan that was to mature in August 2021 and the related unamortized deferred financing costs of approximately $0.2 million were written off to loss on the Company’s revolving credit facility, and for property acquisitions.extinguishment of debt. As of December 31, 2017,2019, the Company also 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 and $100.0 million of senior unsecured notes that mature in December 2029 (collectively with the July 2024 Senior Unsecured Notes, the “Senior Unsecured Notes”), and a credit facility (the “Facility”), which consists of a $200.0$250.0 million unsecured revolving credit

Index to Financial Statements

facility that matures to August 2020, a $50.0 million term loan that matures in August 2021October 2022 and a $100.0 million term loan that matures in January 2022. As of December 31, 20172019 and 2016,2018, there was $0 and $51.5$19.0 million, respectively, of borrowings outstanding on the revolving credit facility and $150.0$100.0 million and $150.0 million, respectively, of borrowings outstanding on the term loans. As of both December 31, 2017 and 2016,2019, the Company had three2 interest rate caps to hedge the variable cash flows associated with its existing $100.0 million variable-rate term loan. As of December 31, 2018, the Company had 3 interest rate caps to hedge the variable cash flows associated with its existing $150.0 million of variable-rate term loans.loan. See “Note8-Derivative 9-Derivative Financial Instruments” for more information regarding the Company’s interest rate caps.

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 $150.0 million of term loans and the $200.0$250.0 million revolving credit facility and the $100.0 million term loan or (ii) 60.0% of the value of the unencumbered properties. Interest on the Facility, including the term loans,loan, is generally to be paid based upon, at the Company’s option, either (i) LIBOR plus the applicable LIBOR margin or (ii) the applicable base rate which is the greatest of the administrative agent’s prime rate, 0.50% above the federal funds effective rate, orthirty-day LIBOR plus the applicable LIBOR margin for LIBOR rate loans under the Facility plus 1.25%. The applicable LIBOR margin will range from 1.35%1.05% to 1.90% (1.35% at1.50% (1.05% as of December 31, 2017)2019) for the revolving credit facility and 1.30%1.20% to 1.85% (1.30% at1.70% (1.20% as December 31, 2017)2019) for the $50.0 million term loan that matures in August 2021 and the $100.0 million term loan that matures in January 2022, depending on the ratio of the Company’s outstanding consolidated indebtedness to the value of the Company’s consolidated gross asset value. The Facility requires quarterly payments of an annual unused facility fee in an amount equalranging from 0.15% to 0.20% or 0.25%0.30% depending on the unused portionratio of the Facility.

Company’s outstanding consolidated indebtedness to the value of the Company’s consolidated gross asset value.

The Facility and the Senior Unsecured Notes are guaranteed by the Company and by substantially all of the current andto-be-formed subsidiaries of the borrowerCompany that own an unencumbered property. The Facility and the Senior Unsecured Notes are unsecured by the Company’s 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 the Company must comply. The Company was in compliance with the covenants under the Facility and the Senior Unsecured Notes as of December 31, 20172019 and 2016.

2018.



The Company has mortgage loans payable which are collateralized by certain of the properties and require monthly interest and principal payments until maturity and are generallynon-recourse. The mortgage loans mature between 20192020 and 2021. As of December 31, 2017,2019, the Company had three2 mortgage loans payable, net of deferred financing costs, totaling approximately $64.8$44.3 million, which bear interest at a weighted average fixed annual rate of 4.0%4.1%. As of December 31, 2016,2018, the Company had four3 mortgage loans payable, net of deferred financing costs, totaling approximately $66.6$45.8 million, which bore interest at a weighted average fixed annual interest rate of 4.0%4.1%. As of December 31, 20172019 and 2016,2018, the total gross book value of the properties securing the debt was approximately $114.9 million and $153.7 million, and $163.1 million, respectively.

Index to Financial Statements

The scheduled principal payments of the Company’s debt as of December 31, 20172019 were as follows (dollars in thousands):

   Credit
Facility		   Term
Loans		  Senior
Unsecured
Notes		  Mortgage
Loans
Payable		  Total Debt 

2018

  $—     $—    $—    $1,910  $1,910 

2019

   —      —     —     18,805   18,805 

2020

   —      —     —     33,077   33,077 

2021

   —      50,000   —     11,271   61,271 

2022

   —      100,000   50,000   —     150,000 

Thereafter

   —      —     200,000   —     200,000 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Subtotal

   —      150,000   250,000   65,063   465,063 

Unamortized net premiums

   —      —     —     —     —   
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total Debt

   —      150,000   250,000   65,063   465,063 

Deferred financing costs, net

   —      (1,103)   (2,045)   (232)   (3,380) 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total Debt, net

  $—     $148,897  $247,955  $64,831  $461,683 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Weighted Average Interest Rate

   n/a    2.5%   4.1%   4.0%   3.6% 

Credit
Facility
Term
Loans
Senior
Unsecured
Notes
Mortgage
Loans
Payable
Total Debt
2020$—  $—  $—  $33,077  $33,077  
2021—  —  —  11,271  11,271  
2022—  100,000  50,000  —  150,000  
2023—  —  —  
2024—  —  100,000  —  100,000  
Thereafter—  —  200,000  —  200,000  
Total Debt—  100,000  350,000  44,348  494,348  
Deferred financing costs, net—  (417) (2,326) (30) (2,773) 
Total Debt, net$—  $99,583  $347,674  $44,318  $491,575  
Weighted Average Interest Raten/a  3.0 %3.8 %4.1 %3.7 %

Note 7.8. Leasing

The following is a schedule of minimum future cash rentals on tenant operating leases in effect as of December 31, 2017.2019. The schedule does not reflect future rental revenues from the renewal or replacement of existing leases and excludes property operating expense reimbursements (dollars in thousands):

2018

  $103,924 

2019

   91,512 

2020

   79,283 

2021

   65,128 

2022

   49,378 

Thereafter

   130,454 
  

 

 

 

Total

  $519,679 
  

 

 

 
2020$130,321  
2021115,704  
202298,104  
202378,567  
202460,999  
Thereafter149,665  
Total$633,360  

Note 8.9. Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of its known or expected cash payments principally related to its borrowings.

Derivative Instruments

19

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest

Index to Financial Statements

rate caps as part of its interest rate risk management strategy. Interest rate caps involve the receipt of variable amounts from a counterparty at the end of each period in which the interest rate exceeds the agreed fixed price. The Company does not use derivatives for trading or speculative purposes. The Company requires that hedging derivative instruments be highly effective in reducing the risk exposure that they are designated to hedge. As a result, there is no significant ineffectiveness from any of its derivative activities.

The accounting for changes in fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative that is designated and that qualifies as a cash flow hedge, the effective portion of the change in fair value of the derivative is initially recorded in accumulated other comprehensive income (loss) (“AOCI”). Amounts recorded in AOCI are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.

As of December 31, 2017 and 2016,2019, the Company had three2 interest rate caps to hedge the variable cash flows associated with its existing $100.0 million variable-rate term loan. The caps have a notional value of $100.0 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 and $50.0 million for the period from September 1, 2015 (effective date) to February 3, 2020. As of December 31, 2018, the Company had 3 interest rate caps to hedge the variable cash flows associated with its existing $150.0 million of variable-rate term loans. The caps have a notional value of $150.0 million and will effectively cap the annual interest rate payable at 4.0% plus 1.30%1.20% to 1.85%1.70%, depending on leverage, with respect to $50.0 million for the period from December 1, 2014 (effective date) to May 1,4, 2021, $50.0 million for the period from September 1, 2015 (effective date) to April 1, 2019 and $50.0 million for the period from September 1, 2015 (effective date) to February 3, 2020. The Company is required to make certain monthly variable rate payments on the term loans,loan(s), while the applicable counterparty is obligated to make certain monthly floating rate payments based on LIBOR to the Company in the event LIBOR is greater than 4.0%, referencing the same notional amount.

The Company records all derivative instruments on a gross basis in other assets on the accompanying consolidated balance sheets, and accordingly, there are no offsetting amounts that net assets against liabilities. The following table presents a summary of the Company’s derivative instruments designated as hedging instruments (dollars in thousands):

   Effective
Date		   Maturity
Date		   Interest
Rate
Strike		  Fair Value   Notional Amount 
       December 31,
2017		   December 31,
2016		   December 31,
2017		   December 31,
2016		 

Derivative Instrument

             

Assets:

             

Interest Rate Cap

   12/1/2014    5/1/2021    4.0%  $26   $204   $50,000   $50,000 

Interest Rate Cap

   9/1/2015    4/1/2019    4.0%   1   14   50,000    50,000 

Interest Rate Cap

   9/1/2015    2/3/2020    4.0%   3   63   50,000    50,000 
       

 

 

   

 

 

   

 

 

   

 

 

 

Total

       $30   $281   $150,000   $150,000 
       

 

 

   

 

 

   

 

 

   

 

 

 

Effective
Date
Maturity
Date
Interest
Rate
Strike
Fair ValueNotional Amount
December 31, 2019December 31, 2018December 31, 2019December 31, 2018
Derivative Instrument
Assets:
Interest Rate Cap12/1/20145/4/20214.0 %$—  $25  $50,000  $50,000  
Interest Rate Cap9/1/20154/1/20194.0 %—  —  —  50,000  
Interest Rate Cap9/1/20152/3/20204.0 %—  1  50,000  50,000  
Total$—  $26  $100,000  $150,000  
The effective portion of changes in the fair value of derivatives designated and qualified as cash flow hedges is recorded in AOCI and will be reclassified to interest expense in the period that the hedged forecasted transaction affects earnings on the Company’s variable rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings into interest expense.

Index to Financial Statements

The following table presents the effect of the Company’s derivative financial instruments on its accompanying consolidated statements of operations for years ended December 31, 20172019 and 2016 (in2018 (dollars in thousands):

   For the Year Ended December 31, 
       2017           2016           2015     

Interest rate caps in cash flow hedging relationships:

      

Amount of gain recognized in AOCI on derivatives (effective portion)

  $103   $—     $—   

Amount of gain reclassified from AOCI into interest expense (effective portion)

  $103   $—     $—   

For the Year Ended December 31,
20192018
Interest rate caps in cash flow hedging relationships:
Amount of gain recognized in AOCI on derivatives (effective portion)$(26) $289  
Amount of gain reclassified from AOCI into interest expense (effective portion)$350  $289  
20

The Company estimates that approximately $0.3 million will be reclassified from AOCI as an increase to interest expense over the next twelve months.

Note 9.10. Fair Value Measurements

ASC 820 requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).

Recurring Measurements – Interest Rate Contracts

Fair Value of Interest Rate Caps

Currently, the Company uses interest rate cap agreements to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. As of December 31, 20172019 and 2016,2018, the Company applied the provisions of this standard to the valuation of its interest rate caps.

The following sets forth the Company’s financial instruments that are accounted for at fair value on a recurring basis as of December 31, 20172019 and 20162018 (dollars in thousands):

   Fair Value Measurement Using 
   Total Fair Value   Quoted Price in
Active Markets for
Identical Assets and
Liabilities
(Level 1)		   Significant Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Assets

        

Interest rate caps at:

        

December 31, 2017

  $30   $—     $30   $—   

December 31, 2016

  $281   $—     $281   $—   

Fair Value Measurement Using
Total Fair Value
Quoted Price in
Active Markets for
Identical Assets and
Liabilities
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets
Interest rate caps at:
December 31, 2019$—  $—  $—  $—  
December 31, 2018$26  $—  $26  $—  
Financial Instruments Disclosed at Fair Value

As of December 31, 20172019 and 2016,2018, the fair values of cash and cash equivalents, accounts receivable, and accounts payable approximated their carrying values because of the short-term nature of these investments or liabilities based on Level 1 inputs. The fair values of the Company’s derivative instruments were evaluated based on Level 2 inputs. The fair values of the Company’s mortgage loans payable and Senior Unsecured Notes were estimated by calculating the present value of principal and interest payments, based on borrowing rates available to the Company, which are Level 2 inputs, adjusted with a credit spread, as applicable, and assuming the loans are outstanding through maturity. The fair value of the Company’s Facility approximated its carrying value because the variable interest rates approximate market borrowing rates available to the Company, which are Level 2 inputs.

Index The fair value of the Company’s Senior Secured Loan approximated its carrying value because the interest rate approximates the market lending rate available to Financial Statements
the borrower, which is a Level 2 input.

The following table sets forth the carrying value and the estimated fair value of the Company’s Senior Secured Loan and debt as of December 31, 20172019 and 20162018 (dollars in thousands):

   Fair Value Measurement Using     
   Total Fair Value   Quoted Price in
Active Markets
for Identical
Assets and
Liabilities
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		   Carrying Value 

Liabilities

          

Debt at:

          

December 31, 2017

  $459,048   $—     $459,048   $—     $461,683 

December 31, 2016

  $417,219   $—     $417,219   $—     $415,327 
21

Fair Value Measurement Using
Total Fair Value
Quoted Price in
Active Markets
for Identical
Assets and
Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying Value
Assets
Senior Secured Loan at:
December 31, 2019$15,915  $—  $15,915  $—  $15,858  
December 31, 2018$55,000  $—  $55,000  $—  $54,492  
Liabilities
Debt at:
December 31, 2019$503,028  $—  $503,028  $—  $491,575  
December 31, 2018$455,159  $—  $455,159  $—  $462,097  

Note 10.11. Stockholders’ Equity

The Company’s authorized capital stock consists of 400,000,000 shares of common stock, $0.010.01 par value per share, and 100,000,000 shares of preferred stock, $0.010.01 par value per share. The Company has anat-the-market equity offering program (the “$200300 Million ATM Program”) pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $200.0$300.0 million ($148.9 million remaining as of December 31, 2019) in amounts and at times to be determined by the Company from time to time. Prior to the implementation of the $200$300 Million ATM Program, the Company had a $150.0$250.0 million ATM program (the “$150250 Million ATM Program”), which was substantially utilized as of May 2019 and is no longer active, and a $200.0 million ATM program (the “$200 Million ATM Program”), which was fully utilized as of June 30, 2017,2018 and a $100.0 million ATM program (the “$100 Million ATM Program”), which was fully utilized as of December 31, 2016.is no longer active. Actual sales under the $200$300 Million ATM Program, if any, will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Company’s common stock, determinations by the Company of the appropriate sources of funding for the Company and potential uses of funding available to the Company. The Company intends to use the net proceeds from the offering of the shares under the $200$300 Million ATM Program, if any, for general corporate purposes, which may include future acquisitions and repayment of indebtedness, including borrowings under the Facility. During the year ended December 31, 2017,2019, the Company issued an aggregate of 7,859,9296,064,576 shares of common stock at a weighted average offering price of $32.48$45.85 per share under the $200$300 Million ATM Program and the $150$250 Million ATM Program, resulting in net proceeds of approximately $251.6$274.0 million and paying total compensation to the applicable sales agents of approximately $3.7$4.0 million. During the year ended December 31, 2016,2018, the Company issued an aggregate of 3,991,8305,492,707 shares of common stock at a weighted average offering price of $25.39$38.04 per share under the $100$250 Million ATM Program and the $200 Million ATM Program, resulting in net proceeds of approximately $99.9$205.9 million and paying total compensation to the applicable sales agents of approximately $1.5$3.0 million. As of December 31, 20172019 and 2016,2018, the Company had shares of common stock having an aggregate offering price of up to $90.1$148.9 million available for issuance under the $200$300 Million ATM Program and $145.5$129.9 million available for issuance under the $150$250 Million ATM Program, respectively.

The CompanyCompany’s has a share repurchase program authorizing the Company to repurchase up to 2,000,0003,000,000 shares of its outstanding common stock from time to time through December 31, 2018.2020. Purchases made pursuant to the 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 the Company in its 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 December 31, 20172019, the Company has not0t repurchased any shares of stock pursuant to its share repurchase authorization.

On April 30, 2019, the Company’s stockholders approved 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 the Company’s 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.
22

In connection with the annual meeting of stockholders on May 2, 2017,April 30, 2019, the Company granted a total of 10,98811,200 shares of unrestricted common stock to its independent directors under the Company’s Amended and Restated 2010 Equity Incentive2019 Plan with a grant date fair value per share of $30.95.$44.65. The grant date fair value of the

Index to Financial Statements

unrestricted common stock was determined using the closing price of the Company’s common stock on the date of the grant. The Company recognized approximately $0.3$0.5 million in compensation costs for the year ended December 31, 20172019 related to this issuance.

As of December 31, 2017 and 2016, respectively, 0 and 1,840,000 shares of Series A Preferred Stock were issued and outstanding.

On July 19, 2017, the Company redeemed all 1,840,000 outstanding shares of the 7.75% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”) for cash at a redemption price of $25.00 per share, plus an amount per share of $0.096875 representing all accrued and unpaid dividends per share from July 1, 2017 to, but excluding, July 19, 2017. The Company recognized a charge of approximately $1.8 million during the year ended December 31, 2017 representing thewrite-off of original issuance costs related to the redemption of the Series A Preferred Stock.

As of December 31, 2017,2019, there were 1,705,0001,898,961 shares of common stock authorized for issuance as restricted stock grants, unrestricted stock awards or Performance Share awards under the Company’s Amended and Restated 2010 Equity Incentive2019 Plan, (the “Plan”), of which 595,0241,460,991 were remaining and available for issuance. The grant date fair value per share of restricted stock awards issued during the period from February 16, 2010 (commencement of operations) to December 31, 20172019 ranged from $14.20 to $26.52.$50.10. The fair value of the restricted stock that was granted during the year ended December 31, 20172019 was approximately $0.9$5.2 million and the vesting period for the restricted stock is five years. As of December 31, 2017,2019, the Company had approximately $4.7$6.1 million of total unrecognized compensation costs related to restricted stock issuances, which is expected to be recognized over a remaining weighted average period of approximately 2.83.8 years. The Company recognized compensation costs of approximately $1.7$1.9 million, $1.9 million and $1.3$1.7 million, respectively, for the years ended December 31, 2017, 20162019, 2018 and 20152017 related to the restricted stock issuances.

The following is a summary of the total restricted shares granted to the Company’s executive officers and employees with the related weighted average grant date fair value share prices for the years ended December 31, 2017, 20162019, 2018 and 2015.

2017.

Restricted Stock Activity:

   Shares   Weighted
Average Grant
Date Fair Value		 

Non-vested shares outstanding as of December 31, 2014

   156,488   $17.45 

Granted

   308,087    20.97 

Forfeited

   (20,322)    17.33 

Vested

   (40,785)    18.13 
  

 

 

   

 

 

 

Non-vested shares outstanding as of December 31, 2015

   403,468    20.08 

Granted

   32,797    21.50 

Forfeited

   (16,489)    17.53 

Vested

   (24,495)    17.26 
  

 

 

   

 

 

 

Non-vested shares outstanding as of December 31, 2016

   395,281    20.48 

Granted

   32,247    26.52 

Forfeited

   (50,008)    21.60 

Vested

   (20,337)    18.06 
  

 

 

   

 

 

 

Non-vested shares outstanding as of December 31, 2017

   357,183   $21.01 
  

 

 

   

 

 

 

Index to Financial Statements

Shares
Weighted
Average Grant
Date Fair Value
Non-vested shares outstanding as of December 31, 2016395,281  $20.48  
Granted32,247  26.52  
Forfeited(50,008) 21.60  
Vested(20,337) 18.06  
Non-vested shares outstanding as of December 31, 2017357,183  21.01  
Granted53,915  34.63  
Forfeited(11,830) 20.30  
Vested(15,338) 20.21  
Non-vested shares outstanding as of December 31, 2018383,930  22.98  
Granted111,099  46.99  
Forfeited(52,892) 31.02  
Vested(15,367) 23.90  
Non-vested shares outstanding as of December 31, 2019426,770  $28.20  

The following is a vesting schedule of the totalnon-vested shares of restricted stock outstanding as of December 31, 2016:

Non-vested Shares Vesting Schedule

  Number of Shares 

2018

   27,168 

2019

   18,966 

2020

   298,028 

2021

   8,350 

2022

   4,671 

Thereafter

   —   
  

 

 

 

TotalNon-vested Shares

   357,183 
  

 

 

 

2019:

Non-vested Shares Vesting ScheduleNumber of Shares
2020295,936  
20218,135  
20227,101  
202332,016  
202483,582  
Thereafter—  
Total Non-vested Shares426,770  
23

Long-Term Incentive Plan:

As of December 31, 2017,2019, there are three3 open performance measurement periods for the Performance Share awards: January 1, 2015 to December 31, 2017, January 1, 2016 to December 31, 2018 and January 1, 2017 to December 31, 2019.2019, January 1, 2018 to December 31, 2020 and January 1, 2019 to December 31, 2021. During the year ended December 31, 2017,2019, the Company issued 195,233196,087 shares of common stock at a price of $28.84$36.55 per share related to the Performance Share awards for the performance period from January 1, 20142016 to December 31, 2016.2018. The Company recorded compensation expense of approximately $6.7 million, $7.3 million and $4.5 million, respectively, for the years ended December 31, 2017, 2016 and 2015, related to the Performance Share awards. As of December 31, 2017, 2016 and 2015 approximately $11.8 million, $10.7 million, and $6.4 million respectively, of compensation costs related to theopen Performance Share awards were accrued.

granted prior to January 1, 2019 varies quarter to quarter based on the Company's relative share price performance.

The following table summarizes certain information with respect to the Performance Share awards granted prior to January 1, 2019 (dollars in thousands):

   

Fair Value

   

Accrual

   Expense 
       For the Year Ended
December 31,		 

Performance Share Period

  December 31,
2017		   December 31,
2017		   2017   2016   2015 

January 1, 2017 — December 31, 2019

  $4,596   $1,532   $1,532   $—     $—   

January 1, 2016 — December 31, 2018

   5,175    3,452    2,189    1,262    —   

January 1, 2015 — December 31, 20171

   6,840    6,840    2,994    2,589    1,257 

January 1, 2014 — December 31, 2016

   —      —      —      3,471    1,463 

January 1, 2013 — December 31, 2015

   —      —      —      —      1,761 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $16,611   $11,824   $6,715   $7,322   $4,481 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair ValueAccrualExpense
For the Year Ended December 31,
Performance Share PeriodDecember 31, 2019December 31, 2019201920182017
January 1, 2018 - December 31, 2020$6,521  $4,343  $3,208  $1,135  $—  
     January 1, 2017 - December 31, 2019 1
7,290  7,290  3,217  2,540  1,532  
January 1, 2016 - December 31, 2018—  —  —  3,388  2,189  
January 1, 2015 - December 31, 2017—  —  —  —  2,994  
Total$13,811  $11,633  $6,425  $7,063  $6,715  
1
Subsequent to December 31, 2017, the compensation committee determined that approximately $6.8 million was earned under the Long-Term Incentive Plan with respect to the performance period that ended on December 31, 2017 and a total of 195,963 shares of common stock were issued to the executives.

Index to Financial Statements
December 31, 2019, the compensation committee determined that approximately $7.3 million was earned under the Long-Term Incentive Plan with respect to the performance period that ended on December 31, 2019 and a total of 135,494 shares of common stock were issued to the executives.


Under the Amended LTIP, which the Company amended and restated on January 8, 2019, 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 following table summarizes certain information with respect to the Performance Share awards granted on or after January 1, 2019 (dollars in thousands):
Expense
For the Year Ended December 31,
Performance Share PeriodFair Value on Date of Grant201920182017
January 1, 2019 - December 31, 2021$4,829  $1,610  $—  $—  
Dividends:

The following table sets forth the cash dividends paid or payable per share during the years ended December 31, 20172019 and 2016:

For the Three

Months Ended

 Security  Dividend
per Share		  Declaration Date Record Date Date Paid
March 31, 2017  Common stock  $0.200000  February 7, 2017 March 28, 2017 April 12, 2017
March 31, 2017  Preferred stock  $0.484375  February 7, 2017 March 10, 2017 March 31, 2017
June 30, 2017  Common stock  $0.200000  May 2, 2017 July 7, 2017 July 21, 2017
June 30, 2017  Preferred stock  $0.484375  May 2, 2017 June 9, 2017 June 30, 2017
September 30, 2017  Common stock  $0.220000  August 1, 2017 October 6, 2017 October 21, 2017
December 31, 2017  Common stock  $0.220000  October 31, 2017 December 29, 2017 January 12, 2018

For the Three

Months Ended

 Security  Dividend
per Share		  Declaration Date Record Date Date Paid
March 31, 2016  Common stock  $0.180000  February 9, 2016 March 28, 2016 April 12, 2016
March 31, 2016  Preferred stock  $0.484375  February 9, 2016 March 10, 2016 March 31, 2016
June 30, 2016  Common stock  $0.180000  May 3, 2016 July 7, 2016 July 21, 2016
June 30, 2016  Preferred stock  $0.484375  May 3, 2016 June 10, 2016 June 30, 2016
September 30, 2016  Common stock  $0.200000  July 26, 2016 October 7, 2016 October 21, 2016
September 30, 2016  Preferred stock  $0.484375  July 26, 2016 September 9, 2016 September 30, 2016
December 31, 2016  Common stock  $0.200000  November 1, 2016 December 30, 2016 January 13, 2017
December 31, 2016  Preferred stock  $0.484375  November 1, 2016 December 9, 2016 December 30, 2016

2018:

For the Three
Months Ended
Security
Dividend
per Share
Declaration DateRecord DateDate Paid
March 31, 2019Common stock$0.24 February 5, 2019March 29, 2019April 12, 2019
June 30, 2019Common stock$0.24 April 30, 2019July 5, 2019July 19, 2019
September 30, 2019Common stock$0.27 July 26, 2019October 4, 2019October 18, 2019
December 31, 2019Common stock$0.27 October 29, 2019December 31, 2019January 14, 2020

24

For the Three
Months Ended
Security
Dividend
per Share
Declaration DateRecord DateDate Paid
March 31, 2018Common stock$0.22 February 6, 2018March 28, 2018April 12, 2018
June 30, 2018Common stock$0.22 May 1, 2018July 6, 2018July 20, 2018
September 30, 2018Common stock$0.24 August 1, 2018October 5, 2018October 19, 2018
December 31, 2018Common stock$0.24 October 31, 2018December 18, 2018January 11, 2019
On July 19, 2017, the Company redeemed all 1,840,000 outstanding shares of the Series A Preferred Stock for cash at a redemption price of $25.00 per share, plus an amount per share of $0.096875 representing all accrued and unpaid dividends per share from July 1, 2017 to, but excluding, July 19, 2017.

Note 11.12. Net Income (Loss) Per Share

Pursuant to ASC260-10-45,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, unvested share-based payment awards that containnon-forfeitable rights to dividends are participating securities and are included in the computation of earnings per share pursuant to thetwo-class method. Thetwo-class method of computing earnings per share allocates earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Under thetwo-class method, earnings per common share are computed by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. The Company’snon-vested shares of restricted stock are considered participating securities since these share-based awards containnon-forfeitable rights to dividends irrespective of whether the awards ultimately vest or expire. The Company had no0 anti-dilutive securities or dilutive restricted stock awards outstanding for the years ended December 31, 2017, 20162019, 2018 and 2015.

2017.

In accordance with the Company’s policies of determining whether instruments granted in share-based payment transactions are participating securities and accounting for earnings per share, the net income (loss) per common share is adjusted for earnings distributed through declared dividends (if any) and allocated to all participating securities (weighted average common shares outstanding and unvested restricted shares outstanding) under thetwo-class method. Under this method, allocations were made to 357,183, 398,475402,380, 368,912 and 242,402375,924 of weighted average unvested restricted shares outstanding for the years ended December 31, 2019, 2018 and 2017, 2016respectively.
Performance Share awards which may be payable in shares of the Company’s common stock after the conclusion of each pre-established performance measurement period are included as contingently issuable shares in the calculation of diluted weighted average common shares of stock outstanding assuming the reporting period is the end of the measurement period, and 2015,the effect is dilutive. Diluted shares related to the Performance Share awards were 294,570 and 0 for the years ended December 31, 2019 and 2018, respectively.

Index to Financial Statements


25

Note 12.13. Quarterly Results of Operations – Unaudited

The following tables summarize the Company’s quarterly financial information.

   2017 Quarter Ended 
   March 31  June 30  September 30  December 31 
   (in thousands, except share and per share data) 

Total revenues

  $31,441  $32,778  $33,640  $34,625 

Total costs and expenses

   (21,911)   (23,568)   (23,659)   (24,297) 

Total other income and (expenses)

   (3,731)   6,317   10,952   508 

Net income

   5,799   15,527   20,933   10,836 

Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends

  $4,874  $14,529  $18,852  $10,761 
  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings per Common Share – Basic and Diluted:

     

Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends 1

  $0.10  $0.29  $0.36  $0.20 
  

 

 

  

 

 

  

 

 

  

 

 

 

Basic and Diluted Weighted Average Common Shares Outstanding

   47,645,321   50,325,668   52,804,611   54,563,353 
  

 

 

  

 

 

  

 

 

  

 

 

 

   2016 Quarter Ended 
   March 31  June 30  September 30  December 31 
   (in thousands, except share and per share data) 

Total revenues

  $25,657  $25,817  $27,104  $29,840 

Total costs and expenses

   (20,415)   (19,964)   (22,422)   (24,371) 

Total other income and (expenses)

   2,191   (3,070)   (1,612)   (3,637) 

Net income

   7,433   2,783   3,070   1,832 

Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends

  $6,484  $1,877  $2,161  $936 
  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings per Common Share – Basic and Diluted:

     

Net income available to common stockholders, net of redemption of preferred stock and preferred stock dividends1

  $0.15  $0.04  $0.05  $0.02 
  

 

 

  

 

 

  

 

 

  

 

 

 

Basic and Diluted Weighted Average Common Shares Outstanding

   42,995,106   43,839,910   45,762,761   46,277,521 
  

 

 

  

 

 

  

 

 

  

 

 

 

1The above quarterly income per share calculations are based on the weighted average number of common shares outstanding during each quarter. The income per share calculation for the years ended December 31, 2017 and 2016 in the consolidated statements of operations is based on the weighted average number of common shares outstanding for the years ended December 31, 2017 and 2016. The sum of the quarterly financial data may vary from the years ended December 31, 2017 and 2016 data due to rounding.
2019 Quarter Ended
March 31June 30September 30December 31
(in thousands, except share and per share data)
Total revenues$40,880  $41,730  $43,397  $45,015  
Total costs and expenses(27,071) (28,115) (27,275) (29,724) 
Total other income and (expenses)1,723  (3,236) (1,338) (470) 
Net income15,532  10,379  14,784  14,821  
Net income available to common stockholders$15,434  $10,315  $14,689  $14,727  
Earnings per Common Share – Basic and Diluted:
Net income available to common stockholders, basic 1
$0.25  $0.16  $0.22  $0.22  
Net income available to common stockholders, diluted 1
$0.25  $0.16  $0.22  $0.22  
Basic Weighted Average Common Shares Outstanding61,456,965  63,780,645  65,724,426  66,706,245  
Diluted Weighted Average Common Shares Outstanding61,604,250  64,075,215  66,018,996  67,000,815  

2018 Quarter Ended
March 31June 30September 30December 31
(in thousands, except share and per share data)
Total revenues$37,107  $37,238  $37,899  $39,413  
Total costs and expenses(25,708) (25,099) (24,712) (26,912) 
Total other income and (expenses)(1,342) 7,998  (3,065) 10,471  
Net income10,057  20,137  10,122  22,972  
Net income available to common stockholders$9,992  $20,012  $10,056  $22,827  
Earnings per Common Share – Basic and Diluted:
Net income available to common stockholders, basic 1
$0.18  $0.35  $0.17  $0.38  
Net income available to common stockholders, diluted 1
$0.18  $0.35  $0.17  $0.38  
Basic Weighted Average Common Shares Outstanding55,127,580  56,698,959  58,369,252  59,689,965  
Diluted Weighted Average Common Shares Outstanding55,127,580  56,698,959  58,369,252  59,689,965  

1The above quarterly income per share calculations are based on the weighted average number of common shares outstanding during each quarter. The income per share calculation for the years ended December 31, 2019 and 2018 in the consolidated statements of operations is based on the weighted average number of common shares outstanding for the years ended December 31, 2019 and 2018. The sum of the quarterly financial data may vary from the years ended December 31, 2019 and 2018 data due to rounding.

Note 13.14. Commitments and Contingencies

Litigation.The Company is not involved in any material litigation nor, to its knowledge, is any material litigation threatened against it. In the normal course of business, from time to time, the Company may be involved in legal actions relating to the ownership and operations of its properties. Management does not expect that the liabilities, if any, that may
26

ultimately result from such legal actions will have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

Index to Financial Statements


Environmental Matters.The industrial properties that the Company owns and will acquire are subject to various federal, state and local environmental laws. Under these laws, courts and government agencies have the authority to require the Company, as owner of a contaminated property, to clean up the property, even if it did not know of or was not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated, and therefore it is possible the Company could incur these costs even after the Company sells some of the properties it acquires. In addition to the costs of cleanup, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow using the property as collateral or to sell the property. Under applicable environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, pay for theclean-up of that facility if it becomes contaminated and threatens human health or the environment.

Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos at one of the Company’s properties may seek to recover damages if he or she suffers injury from the asbestos. Lastly, some of these environmental laws restrict the use of a property or place conditions on various activities. An example would be laws that require a business using chemicals to manage them carefully and to notify local officials that the chemicals are being used.

The Company could be responsible for any of the costs discussed above. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could adversely affect the funds available for distribution to its stockholders. The Company generally obtains “Phase I environmental site assessments”, or ESAs, on each property prior to acquiring it. However, these ESAs may not reveal all environmental costs that might have a material adverse effect on the Company’s business, assets, results of operations or liquidity and may not identify all potential environmental liabilities.

The Company utilizes local third-party property managers forday-to-day property management and will rely on these third parties to operate its industrial properties in compliance with applicable federal, state and local environmental laws in their daily operation of the respective properties and to promptly notify the Company of any environmental contaminations or similar issues.

As a result, the Company may become subject to material environmental liabilities of which it is unaware. The Company can make no assurances that (1) future laws or regulations will not impose material environmental liabilities on it, or (2) the environmental condition of the Company’s industrial properties will not be affected by the condition of the properties in the vicinity of its industrial properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to the Company. The Company was not aware of any significant or material exposures as of December 31, 20172019 or 2016.

2018.

General Uninsured Losses. The Company carries property and rental loss, liability and terrorism insurance. The Company believes that the policy terms, conditions, limits and deductibles are adequate and appropriate under the circumstances, given the relative risk of loss, the cost of such coverage and current industry practice. In addition, the Company’s properties are located, or may in the future be located, in areas that are subject to earthquake and flood activity. As a result, the Company has obtained, as applicable, limited earthquake and flood insurance on those properties. There are, however, certain types of extraordinary losses, such as those due to acts of war that may be either uninsurable or not economically insurable. Although the Company has obtained coverage for certain acts of terrorism, with policy specifications and insured limits that it believes are commercially reasonable, there can be no assurance that the Company will be able to collect under such policies. Should an uninsured loss occur, the Company could lose its investment in, and anticipated profits and cash flows from, a property. The Company was not aware of any significant or material exposures as of December 31, 2017 and 2016.

2019 or 2018.

Contractual Commitments.As of February 7, 2018,6, 2020, the Company had three2 outstanding contracts with third-party sellers to acquire three1 industrial propertiesproperty consisting of approximately 526,00066,000 square feet.feet and 1 improved land parcel containing approximately 2.78 acres. There is no assurance that the Company will acquire the propertiesproperty and improved land parcel under contract because the proposed acquisitions are

Index to Financial Statements

subject to the completion of satisfactory due diligence and various closing conditions. The following table summarizes certain information with respect to the propertiesproperty and improved land parcel the Company has under contract:

Market

  Number of
Buildings		   Square Feet   Purchase Price
(in thousands)		   Assumed Debt
(in thousands)		 

Los Angeles

   —      —      —     $—   

Northern New Jersey/New York City

   1    83,294    25,170    —   

San Francisco Bay Area

   —      —      —      —   

Seattle

   2    442,720    67,410    —   

Miami

   —      —      —      —   

Washington, D.C.

   —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   3    526,014   $92,580   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

27

MarketNumber of
Buildings		Square FeetPurchase Price
(in thousands)		Assumed Debt
(in thousands)
Los Angeles1  65,670  $18,000  $—  
Northern New Jersey/New York City—  —  —  —  
San Francisco Bay Area 1
—  —  12,000  —  
Seattle—  —  —  —  
Miami—  —  —  —  
Washington, D.C.—  —  —  —  
Total1  65,670  $30,000  $—  

1Represents 1 improved land parcel containing approximately 2.78 acres.

As of February 7, 2018,6, 2020, the Company has two outstanding contracts1 non-binding letter of intent with third-party purchasersa third party buyer to sell two3 industrial properties consisting of three buildingsin the Washington, D.C. market totaling approximately 340,000 square feet for an aggregate salesa sale price of approximately $39.3 million (aggregate net book value of approximately $29.4 million).$54.0 million. There is no assurance that the Company will sell the properties under contractletter of intent because the proposed dispositions aredisposition is subject to the purchaser’s completion of a contract and satisfactory due diligence and various closing conditions.


Note 14.15. Subsequent Events

On January 31, 2018,6, 2020, the Company acquired one industrial building locatedrepaid a $32.7 million mortgage loan payable that was to mature in Torrance, CA containing approximately 100,000 square feet for a total purchase price of approximately $17.5 million. The property was acquired from an unrelated third-party using existing cash on hand.

March 2020 and bore interest at 3.65%.

On February 6, 2018,5, 2020, the Company’s board of directors declared a cash dividend in the amount of $0.22$0.27 per share of its common stock payable on April 12, 201810, 2020 to the stockholders of record as of the close of business on March 27, 2020.

28 2018.

Index to Financial Statements


Terreno Realty Corporation

Schedule III

Real Estate Investments and Accumulated Depreciation

As of December 31, 2017

2019

(in thousands)

          Initial Cost
to Company		  Costs
Capitalized
Subsequent
to
Acquisition		  Gross Amount Carried
at December 31, 2017		          

Property Name

 No. of
Bldgs.		  

Location

 Encumbrances  Land  Buildings &
Improvements		   Land  Buildings &
Improvements		  Total  Accumulated
Depreciation		  Year
Acquired		  Year
Constructed		 

Los Angeles

            

104th Street

  1  Los Angeles, CA $—    $3,701  $976  $—    $3,701  $976  $4,677  $5   2017   1951 

139th Street

  2  Carson, CA  —     21,236   15,783   —     21,236   15,783   37,019   17   2017   1965/2003 

630 Glasgow

  1  Inglewood, CA  2,165   2,245   1,855   385   2,245   2,240   4,485   501   2011   1988 

747 Glasgow

  1  Inglewood, CA  —     1,759   1,555   205   1,759   1,760   3,519   216   2014   1981 

1215 Walnut

  1  Compton, CA  —     6,130   2,522   10   6,130   2,532   8,662   32   2017   1969/1990 

14605 Miller Ave

  1  Fontana, CA  —     8,695   12,945   8   8,695   12,953   21,648   1,042   2014   1990 

14611 Broadway

  1  Gardena, CA  —     4,757   1,243   974   4,757   2,217   6,974   597   2013   1962 

19601 Hamilton

  1  Torrance, CA  —     7,409   4,072   671   7,409   4,743   12,152   734   2011   1985 

709 Hindry

  1  Inglewood, CA  —     2,105   2,972   32   2,105   3,004   5,109   104   2016   1984 

Acacia

  1  Compton, CA  —     5,143   1,985   625   5,143   2,610   7,753   120   2017   1972 

California

  1  Corona, CA  —     3,225   4,416   464   3,225   4,880   8,105   474   2014   1994 

Dominguez

  —    Los Angeles, CA  —     11,370   1,535   —     11,370   1,535   12,905   8   2017   —   

Garfield

  5  Commerce, CA  22,723   27,539   22,694   3,347   27,539   26,041   53,580   5,127   2012   2002 

Hawthorne

  8  Hawthorne, CA  —     17,226   10,069   —     17,226   10,069   27,295   11   2017   1952/1986 

Las Hermanas

  1  Compton, CA  —     3,330   751   208   3,330   959   4,289   148   2014   1970 

Lynwood

  3  Lynwood, CA  —     43,885   —     —     43,885   —     43,885   —     2017   1988 

Manhattan Beach

  1  Redondo Beach, CA  —     7,874   5,641   340   7,874   5,981   13,855   906   2012   1963/1970 

South Main

  2  Carson, CA  —     16,371   7,045   17,028   16,371   24,073   40,444   4,932   2012/2014   2016 

South Main III

  1  Gardena, CA  —     11,521   12,467   —     11,521   12,467   23,988   181   2017   2016 

Telegraph Springs

  2  Santa Fe Springs, CA  —     7,063   7,236   62   7,063   7,298   14,361   87   2017   2007 

Northern New Jersey/
New York City

            

1 Dodge Drive

  1  West Caldwell, NJ  —     3,819   2,982   1,439   3,819   4,421   8,240   901   2013   1985 

17 Madison

  1  Fairfield, NJ  —     974   1,647   468   974   2,115   3,089   370   2013   1979 

20 Pulaski

  1  Bayonne, NJ  —     4,003   4,946   1,134   4,003   6,080   10,083   742   2014   1965 

22 Madison

  1  Fairfield, NJ  —     1,365   1,607   104   1,365   1,711   3,076   112   2015   1979 

50 Kero

  2  Carlstadt, NJ  —     10,343   3,876   141   10,343   4,017   14,360   43   2017   1970 

74th North Bergen

  1  North Bergen, NJ  —     2,933   1,817   353   2,933   2,170   5,103   71   2016   1973 

341 Michele

  1  Carlstadt, NJ  —     2,372   4,798   485   2,372   5,283   7,655   628   2013   1973 

422 Frelinghuysen

  —    Newark, NJ  —     16,728   —     629   16,728   629   17,357   —     2017   —   

465 Meadow

  1  Carlstadt, NJ  —     713   1,618   229   713   1,847   2,560   223   2013   1972 

Index to Financial Statements
          Initial Cost
to Company		  Costs
Capitalized
Subsequent
to
Acquisition		  Gross Amount Carried
at December 31, 2017		          

Property Name

 No. of
Bldgs.		  

Location

 Encumbrances  Land  Buildings &
Improvements		   Land  Buildings &
Improvements		  Total  Accumulated
Depreciation		  Year
Acquired		  Year
Constructed		 

550 Delancy

  1  Newark, NJ  —     9,230   4,855   1,053   9,230   5,908   15,138   656   2013   1987 

620 Division

  1  Elizabeth, NJ  5,910   6,491   3,568   2,995   6,491   6,563   13,054   1,983   2011   1980 

7777 West Side

  1  North Bergen, NJ  —     4,525   8,856   —     4,525   8,856   13,381   161   2017   1967 

900 Hart

  1  Piscataway, NJ  —     3,202   3,866   887   3,202   4,753   7,955   620   2014   1983 

901 North

  —    Elizabeth, NJ  —     8,035   913   822   8,035   1,735   9,770   145   2016   2016 

Avenue A

  4  Carlstadt, NJ  —     7,516   4,660   262   7,516   4,922   12,438   102   2017   1951/1957 

Belleville

  1  Kearny, NJ  12,570   12,845   18,041   1,323   12,845   19,364   32,209   3,174   2011   2006 

Dell

  1  Carlstadt, NJ  —     6,641   771   170   6,641   941   7,582   150   2011   1972 

Ethel

  2  Piscataway, NJ  —     2,748   3,801   1,217   2,748   5,018   7,766   743   2013   1981/1984 

Interstate

  2  South Brunswick, NJ  —     13,686   12,135   10,286   13,686   22,421   36,107   3,796   2010/2013   1999/2014 

JFK Airgate

  4  Queens, NY  —     18,282   32,933   3,893   18,282   36,826   55,108   4,383   2013   1986/1991 

Manor

  1  East Rutherford, NJ  —     4,076   5,262   1,685   4,076   6,947   11,023   411   2015   1968 

Melanie Lane

  3  East Hanover, NJ  —     5,931   13,178   1,894   5,931   15,072   21,003   2,059   2013   1980/1998 

Middlebrook

  18  Bound Brook, NJ  —     16,442   10,241   10,254   16,442   20,495   36,937   5,696   2010   1958/1976 

New Dutch

  1  Fairfield, NJ  —     4,773   2,004   —     4,773   2,004   6,777   3   2017   1976 

Paterson Plank

  1  Carlstadt, NJ  —     4,127   455   118   4,127   573   4,700   21   2016   1998 

Schoolhouse

  1  Somerset, NJ  —     2,375   5,705   —     2,375   5,705   8,080   195   2016   2009 

Stockton

  —    Newark, NJ  —     12,327   1,282   222   12,327   1,504   13,831   45   2017   —   

Terminal Way

  2  Avenel, NJ  —     3,537   3,598   38   3,537   3,636   7,173   294   2014   1950/1968 

Wilson

  1  Newark, NJ  —     2,016   484   776   2,016   1,260   3,276   84   2016   1970 

San Francisco Bay Area

            

238/242 Lawrence

  2  South San Francisco, CA  —     6,674   2,655   1,111   6,674   3,766   10,440   1,014   2010   1986 

240 Littlefield

  1  South San Francisco, CA  —     5,107   3,293   2,852   5,107   6,145   11,252   661   2013   2013 

299 Lawrence

  1  South San Francisco, CA  —     1,352   1,198   416   1,352   1,614   2,966   477   2010   1968 

631 Brennan

  1  San Jose, CA  —     1,932   2,245   503   1,932   2,748   4,680   535   2012   1975 

Ahern

  2  Union City, CA  3,124   3,246   2,749   665   3,246   3,414   6,660   854   2010   1986 

Ahern II

  1  Union City, CA  —     2,467   4,527   201   2,467   4,728   7,195   388   2015   1997 

Burroughs

  3  San Leandro, CA  —     5,400   7,092   659   5,400   7,751   13,151   770   2014   1966 

Caribbean

  3  Sunnyvale, CA  —     17,483   14,493   1,721   17,483   16,214   33,697   2,634   2012   1980/1981 

Carlton Court

  1  South San Francisco, CA  —     2,036   1,475   162   2,036   1,637   3,673   296   2012   1981 

Clawiter

  1  Hayward, CA  4,308   5,964   1,159   23   5,964   1,182   7,146   178   2011   1967 

Hotchkiss

  1  Fremont, CA  —     4,163   3,152   419   4,163   3,571   7,734   25   2017   1997 

221 Michele

  1  South San Francisco, CA  —     2,710   2,540   132   2,710   2,672   5,382   148   2016   1979 

West 140th

  2  San Leandro, CA  —     9,578   6,297   3,617   9,578   9,914   19,492   269   2016   1959 

Central Pacific Business Park I

  3  Union City, CA  —     8,468   14,165   678   8,468   14,843   23,311   1,297   2014   1989 

Central Pacific Business Park II

  4  Union City, CA  —     13,642   23,658   5,132   13,642   28,790   42,432   2,001   2015   2015 

Index to Financial Statements
          Initial Cost
to Company		  Costs
Capitalized
Subsequent
to
Acquisition		  Gross Amount Carried
at December 31, 2017		          

Property Name

 No. of
Bldgs.		  

Location

 Encumbrances  Land  Buildings &
Improvements		   Land  Buildings &
Improvements		  Total  Accumulated
Depreciation		  Year
Acquired		  Year
Constructed		 

Seattle

            

79 Ave South

  1  Kent, WA  —     1,267   1,503   380   1,267   1,883   3,150   277   2014   2000 

3401 Lind

  1  Renton, WA  —     2,999   6,707   383   2,999   7,090   10,089   568   2014   1984/2012 

4225 2nd Avenue

  1  Seattle, WA  —     4,236   4,049   2,009   4,236   6,058   10,294   359   2015   1957 

4930 3rd Avenue South

  1  Seattle, WA  —     3,984   2,424   12   3,984   2,436   6,420   121   2016   1964 

17600 West Valley Highway

  1  Tukwila, WA  —     3,361   5,260   960   3,361   6,220   9,581   1,121   2012   1986 

Auburn 1307

  1  Auburn, WA  —     4,253   5,034   181   4,253   5,215   9,468   507   2014   2002 

Dawson

  1  Seattle, WA  —     3,902   278   —     3,902   278   4,180   4   2017   1964 

Denver

  1  Seattle, WA  —     3,203   1,345   480   3,203   1,825   5,028   71   2016   1953 

Hanford

  1  Seattle, WA  —     3,821   2,250   215   3,821   2,465   6,286   43   2017   1952 

Kent 188

  1  Kent, WA  4,757   3,251   4,719   1,248   3,251   5,967   9,218   1,337   2010   1979 

Kent 190

  1  Kent, WA  —     4,560   5,561   271   4,560   5,832   10,392   426   2015   1992/1999 

Kent 202

  1  Kent, WA  —     5,761   9,114   2,806   5,761   11,920   17,681   644   2015   1981 

Kent 216

  1  Kent, WA  —     3,672   5,408   299   3,672   5,707   9,379   693   2014   1996 

Kent Corporate Park

  4  Kent, WA  —     5,032   6,916   1,164   5,032   8,080   13,112   644   2015   1980/1981 

Lucile

  1  Seattle, WA  —     4,498   3,504   1,334   4,498   4,838   9,336   126   2017   1976 

Lund

  1  Auburn, WA  —     2,573   4,399   56   2,573   4,455   7,028   214   2016   1999 

Olympic

  1  Tukwila, WA  —     1,499   1,431   491   1,499   1,922   3,421   189   2015   1978 

SeaTac 8th Avenue

  1  Burien, WA  —     2,501   4,020   491   2,501   4,511   7,012   751   2013   1988 

SW 34th

  1  Renton, WA  —     2,912   3,289   478   2,912   3,767   6,679   360   2014   1996/2010 

Valley Corporate

  2  Kent, WA  7,713   5,264   9,096   1,279   5,264   10,375   15,639   1,745   2011   1987 

Miami

            

10th Avenue

  1  Hialeah, FL  —     6,376   2,624   2,884   6,376   5,508   11,884   1,648   2010   1957/2005 

25th Street

  1  Doral, FL  —     4,454   4,889   68   4,454   4,957   9,411   395   2015   1974 

26th Street

  2  Miami, FL  —     4,569   6,183   46   4,569   6,229   10,798   876   2012   1973 

48th Avenue

  2  Miami Gardens, FL  —     4,322   2,187   372   4,322   2,559   6,881   395   2011   1987 

60th Avenue

  1  Miami Lakes, FL  —     6,203   1,567   6,582   6,203   8,149   14,352   2,292   2010   1971/2011 

70th Avenue

  1  Miami, FL  —     1,434   2,333   198   1,434   2,531   3,965   440   2011   1999 

70th Avenue II

  1  Miami, FL  —     2,152   3,418   33   2,152   3,451   5,603   142   2016   1969 

70th Avenue III

  1  Miami, FL  —     2,543   3,167   —     2,543   3,167   5,710   91   2016   1974 

70th Avenue IV

  1  Miami, FL  —     1,119   1,456   —     1,119   1,456   2,575   14   2017   1969 

70th Avenue V

  1  Miami, FL  —     5,036   3,419   10   5,036   3,429   8,465   19   2017   1974 

74th Avenue

  1  Miami, FL  —     2,327   3,538   293   2,327   3,831   6,158   99   2016   1986 

78th Avenue

  1  Doral, FL  —     2,445   1,755   1,913   2,445   3,668   6,113   755   2012   1977 

81st Street

  2  Medley, FL  —     2,938   5,242   776   2,938   6,018   8,956   569   2015   1996/2003 

94th Avenue

  1  Doral, FL  —     3,000   3,580   40   3,000   3,620   6,620   19   2017   1989 

107th Avenue

  1  Medley, FL  1,793   2,787   2,036   491   2,787   2,527   5,314   392   2013   2001 

101st Road

  1  Medley, FL  —     2,647   3,258   161   2,647   3,419   6,066   467   2013   2012 
        
Initial Cost
to Company
Costs
Capitalized
Subsequent
to
Acquisition
Gross Amount Carried
at December 31, 2019
     
Property Name
No. of
Bldgs.
LocationEncumbrances  Land  
Buildings &
Improvements
Land  
Buildings &
Improvements
Total  Accumulated

Depreciation 		 
Year
Acquired
Year
Constructed
Los Angeles
104th Street1  Los Angeles, CA$—  $3,701  $976  $—  $3,701  $976  $4,677  $58  20171951
139th Street2  Carson, CA—  21,236  15,783  2  21,236  15,785  37,021  847  20171965/2003
630 Glasgow1  Inglewood, CA—  2,245  1,855  400  2,245  2,255  4,500  658  20111988
747 Glasgow1  Inglewood, CA—  1,759  1,555  297  1,759  1,852  3,611  366  20141981
14611 Broadway1  Gardena, CA—  4,757  1,243  1,020  4,757  2,263  7,020  880  20131962
19601 Hamilton1  Torrance, CA—  7,409  4,072  744  7,409  4,816  12,225  1,141  20111985
709 Hindry1  Inglewood, CA—  2,105  2,972  168  2,105  3,140  5,245  296  20161984
Acacia1  Compton, CA—  5,143  1,985  625  5,143  2,610  7,753  470  20171972
Anderson5  Los Angeles, CA—  17,095  1,271  323  17,095  1,594  18,689  14  20191912-1987
Dominguez—  Los Angeles, CA—  11,370  1,535  1,504  11,370  3,039  14,409  152  2017—  
Garfield5  Commerce, CA21,333  27,539  22,694  3,738  27,539  26,432  53,971  7,343  20122002
Hawthorne8  Hawthorne, CA—  17,226  10,069  1,509  17,226  11,578  28,804  782  20171952/1986
Las Hermanas1  Compton, CA—  3,330  751  673  3,330  1,424  4,754  254  20141970
Lynwood3  Lynwood, CA—  43,885  —  —  43,885  —  43,885  —  20171988
Manhattan Beach1  Redondo Beach, CA—  7,874  5,641  443  7,874  6,084  13,958  1,347  20121963/1970
Shoemaker—  Santa Fe Springs, CA—  4,759  1,099  25  4,759  1,124  5,883  43  20181986/1997
Slauson2  Santa Fe Springs, CA—  4,679  697  45  4,679  742  5,421  8  20191967/1973
South Main2  Carson, CA—  16,371  7,045  17,043  16,371  24,088  40,459  6,122  2012/20142016
South Main III1  Gardena, CA—  11,521  12,467  —  11,521  12,467  23,988  849  20172016
Telegraph Springs2  Santa Fe Springs, CA—  7,063  7,236  241  7,063  7,477  14,540  529  20172007
Vermont1  Torrance, CA—  10,173  7,105  221  10,173  7,326  17,499  365  20181978
1215 Walnut1  Compton, CA—  6,130  2,522  10  6,130  2,532  8,662  174  20171969/1990
Walnut II1  Compton, CA—  6,097  5,069  595  6,097  5,664  11,761  169  20181969
Northern New Jersey/
New York City
1 Dodge Drive1  West Caldwell, NJ—  3,819  2,982  1,628  3,819  4,610  8,429  1,459  20131985
17 Madison1  Fairfield, NJ—  974  1,647  543  974  2,190  3,164  590  20131979
20 Pulaski1  Bayonne, NJ—  4,003  4,946  1,201  4,003  6,147  10,150  1,235  20141965
22 Madison1  Fairfield, NJ—  1,365  1,607  885  1,365  2,492  3,857  203  20151979
48th 3rd and 286 Central1  Kearny, NJ—  12,061  1,664  —  12,061  1,664  13,725  41  20191978/1983
49th Street1  Queens, NY—  21,674  2,999  1,125  21,674  4,124  25,798  104  20191966

Index to Financial Statements
          Initial Cost
to Company		  Costs
Capitalized
Subsequent
to
Acquisition		  Gross Amount Carried
at December 31, 2017		          

Property Name

 No. of
Bldgs.		  

Location

 Encumbrances  Land  Buildings &
Improvements		   Land  Buildings &
Improvements		  Total  Accumulated
Depreciation		  Year
Acquired		  Year
Constructed		 

131st Street

  1  Medley, FL  —     2,903   5,729   430   2,903   6,159   9,062   568   2014   1999 

12950 SW South River

  1  Medley, FL  —     1,971   4,029   400   1,971   4,429   6,400   219   2016   2000 

Americas Gateway

  6  Doral, FL  —     11,152   11,721   2,174   11,152   13,895   25,047   2,044   2013   1978/1982 

Miami International Trade Center

  4  Medley, FL  —     5,063   10,958   654   5,063   11,612   16,675   799   2015   1996 

Washington, D.C.

            

75th Ave

  5  Landover, MD  —     10,658   18,615   2,931   10,658   21,546   32,204   1,944   2014   1987/1990 

2920 V Street

  1  Washington, D.C.  —     2,248   1,670   987   2,248   2,657   4,905   28   2017   1958 

3601 Pennsy

  1  Landover, MD  —     2,331   4,375   499   2,331   4,874   7,205   582   2013   1996 

4230 Forbes

  1  Lanham, MD  —     1,736   2,395   372   1,736   2,767   4,503   287   2013   2003 

8215 Dorsey

  1  Jessup, MD  —     2,263   3,200   765   2,263   3,965   6,228   407   2013   1965/1981 

9070 Junction

  1  Annapolis Junction, MD  —     3,538   6,670   2,638   3,538   9,308   12,846   1,004   2015   1997 

Business Parkway

  1  Lanham, MD  —     3,038   3,007   —     3,038   3,007   6,045   90   2016   2002 

Hampton

  1  Capitol Heights, MD  —     5,095   11,672   830   5,095   12,502   17,597   1,198   2014   2006 

Hampton Overlook

  3  Capitol Heights, MD  —     4,602   7,521   328   4,602   7,849   12,451   334   2016   1989/1990 

Junction

  1  Annapolis Junction, MD  —     2,526   10,419   236   2,526   10,655   13,181   873   2014   1989/2012 

New Ridge

  —    Hanover, MD  —     5,689   1,567   —     5,689   1,567   7,256   74   2016   —   

Parkway

  1  Hanover, MD  —     4,543   12,094   193   4,543   12,287   16,830   1,299   2014   1968/2012 

Troy Hill

  1  Elkridge, MD  —     1,409   5,033   60   1,409   5,093   6,502   812   2012   2003 

V Street

  6  Washington, D.C.  —     67,132   41,299   6,522   67,132   47,821   114,953   4,259   2015   1955/1963 
 

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

Subtotal

  196    65,063   759,659   667,292   133,950   759,659   801,242   1,560,901   90,234   

Unamortized net premiums

  —      —     —     —     —     —     —     —     —     

Unamortized net deferred financing costs

  —      (232)   —     —     —     —     —     —     —     

Intangible assets

  —      —     —     —     —     —     —     76,029   49,580   
 

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

Total

  196   $64,831  $759,659  $667,292  $133,950  $759,659  $801,242  $1,636,930  $139,814   
 

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   
1

Index to Financial Statements


        
Initial Cost
to Company
Costs
Capitalized
Subsequent
to
Acquisition
Gross Amount Carried
at December 31, 2019
     
Property Name
No. of
Bldgs.
LocationEncumbrances  Land  
Buildings &
Improvements
Land  
Buildings &
Improvements
Total  Accumulated

Depreciation 		 
Year
Acquired
Year
Constructed
50 Kero2  Carlstadt, NJ—  10,343  3,876  3,100  10,343  6,976  17,319  455  20171970
51 Kero—  Carlstadt, NJ—  3,236  589  1  3,236  590  3,826  7  20191956-1966
74th North Bergen1  North Bergen, NJ—  2,933  1,817  353  2,933  2,170  5,103  255  20161973
81 N. Hackensack—  Kearny, NJ—  25,901  —  —  25,901  —  25,901  —  2019
85 Doremus—  Newark, NJ—  5,918  513  —  5,918  513  6,431  28  20180
341 Michele1  Carlstadt, NJ—  2,372  4,798  891  2,372  5,689  8,061  993  20131973
422 Frelinghuysen—  Newark, NJ—  16,728  —  6,781  16,728  6,781  23,509  317  2017—  
465 Meadow1  Carlstadt, NJ—  713  1,618  229  713  1,847  2,560  378  20131972
550 Delancy1  Newark, NJ—  9,230  4,855  1,970  9,230  6,825  16,055  1,237  20132  
620 Division1  Elizabeth, NJ—  6,491  3,568  3,405  6,491  6,973  13,464  2,708  20111980
7777 West Side1  North Bergen, NJ—  4,525  8,856  —  4,525  8,856  13,381  616  20171967
900 Hart1  Piscataway, NJ—  3,202  3,866  1,301  3,202  5,167  8,369  898  20141983
901 North—  Elizabeth, NJ—  8,035  913  829  8,035  1,742  9,777  352  20162016
Avenue A4  Carlstadt, NJ—  7,516  4,660  684  7,516  5,344  12,860  476  20171951/1957
Belleville1  Kearny, NJ11,728  12,845  18,041  1,332  12,845  19,373  32,218  4,250  20112006
Commerce1  Carlstadt, NJ—  1,656  1,544  128  1,656  1,672  3,328  54  20181969
Dell1  Carlstadt, NJ—  6,641  771  548  6,641  1,319  7,960  243  20111972
Ethel2  Piscataway, NJ—  2,748  3,801  1,441  2,748  5,242  7,990  1,197  20131981/1984
Interstate2  South Brunswick, NJ—  13,686  12,135  11,104  13,686  23,239  36,925  5,582  2010/20131999/2014
JFK Airgate4  Queens, NY—  18,282  32,933  4,928  18,282  37,861  56,143  7,596  20131986/1991
Manor1  East Rutherford, NJ—  4,076  5,262  1,674  4,076  6,936  11,012  878  20151968
Melanie Lane3  East Hanover, NJ—  5,931  13,178  2,932  5,931  16,110  22,041  3,344  20131980/1998
Middlebrook18  Bound Brook, NJ—  16,442  10,241  12,016  16,442  22,257  38,699  7,842  20101958/1976
Morgan2  Brooklyn, NY—  71,051  10,888  203  71,051  11,091  82,142  106  20191960/1980 & 1967
New Dutch1  Fairfield, NJ—  4,773  2,004  —  4,773  2,004  6,777  160  20171976
Paterson Plank1  Carlstadt, NJ—  4,127  455  88  4,127  543  4,670  79  20161998
Schoolhouse1  Somerset, NJ—  2,375  5,705  295  2,375  6,000  8,375  589  20162009
Stockton—  Newark, NJ—  12,327  1,282  222  12,327  1,504  13,831  255  20170
Terminal Way2  Avenel, NJ—  3,537  3,598  124  3,537  3,722  7,259  507  20141950/1968  
Whelan1  East Rutherford, NJ—  6,366  5,704  —  6,366  5,704  12,070  6  20192005
Wilson1  Newark, NJ—  2,016  484  813  2,016  1,297  3,313  235  20161970
Woodside1  Queens, NY—  23,987  3,796  3,944  23,987  7,740  31,727  305  20182018
San Francisco Bay Area
20th Street1  Oakland, CA—  18,092  6,730  1,017  18,092  7,747  25,839  70  20191970 & 2003
238/242 Lawrence2  South San Francisco, CA—  6,674  2,655  1,546  6,674  4,201  10,875  1,412  20101986
240 Littlefield1  South San Francisco, CA—  5,107  3,293  2,852  5,107  6,145  11,252  1,038  20132013
2

        
Initial Cost
to Company
Costs
Capitalized
Subsequent
to
Acquisition
Gross Amount Carried
at December 31, 2019
     
Property Name
No. of
Bldgs.
LocationEncumbrances  Land  
Buildings &
Improvements
Land  
Buildings &
Improvements
Total  Accumulated

Depreciation 		 
Year
Acquired
Year
Constructed
299 Lawrence1  South San Francisco, CA—  1,352  1,198  423  1,352  1,621  2,973  620  20101968
631 Brennan1  San Jose, CA—  1,932  2,245  561  1,932  2,806  4,738  691  20121975
Ahern2  Union City, CA—  3,246  2,749  871  3,246  3,620  6,866  1,184  20101986
Ahern II1  Union City, CA—  2,467  4,527  201  2,467  4,728  7,195  710  20151997
Burroughs3  San Leandro, CA—  5,400  7,092  1,379  5,400  8,471  13,871  1,288  20141966
Caribbean3  Sunnyvale, CA—  17,483  14,493  2,658  17,483  17,151  34,634  3,709  20121980/1981
Carlton Court1  South San Francisco, CA—  2,036  1,475  162  2,036  1,637  3,673  421  20121981
Clawiter1  Hayward, CA4,045  5,964  1,159  167  5,964  1,326  7,290  247  20111967
Hotchkiss1  Fremont, CA—  4,163  3,152  865  4,163  4,017  8,180  291  20171997
Hotchkiss II1  Fremont, CA—  3,042  3,081  347  3,042  3,428  6,470  87  20181997
Merced4  San Leandro, CA—  25,621  9,318  576  25,621  9,894  35,515  484  20181958
221 Michele1  South San Francisco, CA—  2,710  2,540  659  2,710  3,199  5,909  309  20161979
Minnesota and Tennessee2  San Francisco, CA—  34,738  13,141  190  34,738  13,331  48,069  112  2019
San Clemente1  Hayward, CA—  5,126  3,938  138  5,126  4,076  9,202  146  20181982
West 140th2  San Leandro, CA—  9,578  6,297  3,745  9,578  10,042  19,620  996  20161959
Whitney3  San Leandro, CA—  13,821  9,016  2,123  13,821  11,139  24,960  533  20181974
Wicks1  San Leandro, CA—  2,224  298  —  2,224  298  2,522  15  20181976
Central Pacific Business Park I3  Union City, CA—  8,468  14,165  1,061  8,468  15,226  23,694  2,381  20141989
Central Pacific Business Park II4  Union City, CA—  13,642  23,658  5,219  13,642  28,877  42,519  4,732  20152015
Seattle
79 Ave South1  Kent, WA—  1,267  1,503  594  1,267  2,097  3,364  428  20142000
917 Valley1  Puyallup, WA—  2,203  4,551  —  2,203  4,551  6,754  5  20192006
3401 Lind1  Renton, WA—  2,999  6,707  465  2,999  7,172  10,171  1,045  20141984/2012
4225 2nd Avenue1  Seattle, WA—  4,236  4,049  2,012  4,236  6,061  10,297  790  20151957
4930 3rd Avenue South1  Seattle, WA—  3,984  2,424  783  3,984  3,207  7,191  364  20161964
17600 West Valley Highway1  Tukwila, WA—  3,361  5,260  1,193  3,361  6,453  9,814  1,630  20121986
Auburn 4001  Auburn, WA—  4,415  5,234  —  4,415  5,234  9,649  52  20192000
Auburn 13071  Auburn, WA—  4,253  5,034  249  4,253  5,283  9,536  867  20142002
Dawson1  Seattle, WA—  3,902  278  396  3,902  674  4,576  41  20171964
3

        
Initial Cost
to Company
Costs
Capitalized
Subsequent
to
Acquisition
Gross Amount Carried
at December 31, 2019
     
Property Name
No. of
Bldgs.
LocationEncumbrances  Land  
Buildings &
Improvements
Land  
Buildings &
Improvements
Total  Accumulated

Depreciation 		 
Year
Acquired
Year
Constructed
Denver1  Seattle, WA—  3,203  1,345  489  3,203  1,834  5,037  278  20161953
East Valley1  Renton, WA—  2,693  2,959  40  2,693  2,999  5,692  126  20181991
East Marginal—  Renton, WA—  2,618  380  —  2,618  380  2,998  1  20191991
Hanford1  Seattle, WA—  3,821  2,250  471  3,821  2,721  6,542  176  20171952
Kent 1881  Kent, WA—  3,251  4,719  1,248  3,251  5,967  9,218  1,737  20101979
Kent 1901  Kent, WA—  4,560  5,561  355  4,560  5,916  10,476  840  20151992/1999
Kent 2021  Kent, WA—  5,761  9,114  2,810  5,761  11,924  17,685  1,709  20151981
Kent 2161  Kent, WA—  3,672  5,408  912  3,672  6,320  9,992  1,104  20141996
Kent Corporate Park4  Kent, WA—  5,032  6,916  1,907  5,032  8,823  13,855  1,269  20151980/1981
Lucile1  Seattle, WA—  4,498  3,504  1,342  4,498  4,846  9,344  586  20171976
Lund1  Auburn, WA—  2,573  4,399  82  2,573  4,481  7,054  467  20161999
Olympic1  Tukwila, WA—  1,499  1,431  536  1,499  1,967  3,466  432  20151978
SeaTac 8th Avenue1  Burien, WA—  2,501  4,020  1,150  2,501  5,170  7,671  1,142  20131988
SW 34th1  Renton, WA—  2,912  3,289  498  2,912  3,787  6,699  632  20141996/2010
Valley Corporate2  Kent, WA7,242  5,264  9,096  1,991  5,264  11,087  16,351  2,567  20111987
Miami
26th Street1  Miami, FL—  3,444  4,558  1,178  3,444  5,736  9,180  956  20121973
48th Avenue2  Miami Gardens, FL—  4,322  2,187  574  4,322  2,761  7,083  547  20111987
60th Avenue1  Miami Lakes, FL—  6,203  1,567  7,346  6,203  8,913  15,116  3,091  20101971/2011
70th Avenue1  Miami, FL—  1,434  2,333  198  1,434  2,531  3,965  596  20111999
70th Avenue II1  Miami, FL—  2,152  3,418  524  2,152  3,942  6,094  400  20161969
70th Avenue III1  Miami, FL—  2,543  3,167  690  2,543  3,857  6,400  319  20161974
70th Avenue IV1  Miami, FL—  1,119  1,456  151  1,119  1,607  2,726  125  20171969
70th Avenue V1  Miami, FL—  5,036  3,419  1,526  5,036  4,945  9,981  149  20171974
74th Avenue1  Miami, FL—  2,327  3,538  614  2,327  4,152  6,479  363  20161986
78th Avenue1  Doral, FL—  2,445  1,755  2,604  2,445  4,359  6,804  1,121  20121977
81st Street2  Medley, FL—  2,938  5,242  1,311  2,938  6,553  9,491  1,040  20151996/2003
94th Avenue1  Doral, FL—  3,000  3,580  336  3,000  3,916  6,916  247  20171989
107th Avenue1  Medley, FL—  2,787  2,036  506  2,787  2,542  5,329  608  20132001
101st Road1  Medley, FL—  2,647  3,258  468  2,647  3,726  6,373  781  20132012
131st Street1  Medley, FL—  2,903  5,729  500  2,903  6,229  9,132  1,026  20141999
12950 SW South River1  Medley, FL—  1,971  4,029  368  1,971  4,397  6,368  429  20162000
Americas Gateway6  Doral, FL—  11,152  11,721  3,276  11,152  14,997  26,149  3,402  20131978/1982
Miami International Trade Center4  Medley, FL—  5,063  10,958  1,260  5,063  12,218  17,281  1,623  20151996
Washington, D.C.
75th Ave5  Landover, MD—  10,658  18,615  4,226  10,658  22,829  33,487  3,457  20141987/1990
2920 V Street1  Washington, D.C.—  2,248  1,670  1,499  2,248  3,169  5,417  223  20171958
3601 Pennsy1  Landover, MD—  2,331  4,375  1,425  2,331  5,800  8,131  966  20131996
4

        
Initial Cost
to Company
Costs
Capitalized
Subsequent
to
Acquisition
Gross Amount Carried
at December 31, 2019
     
Property Name
No. of
Bldgs.
LocationEncumbrances  Land  
Buildings &
Improvements
Land  
Buildings &
Improvements
Total  Accumulated

Depreciation 		 
Year
Acquired
Year
Constructed
4230 Forbes1  Lanham, MD—  1,736  2,395  853  1,736  3,248  4,984  511  20132003
9070 Junction1  Annapolis Junction, MD—  3,538  6,670  2,838  3,538  9,508  13,046  2,099  20151997
Business Parkway1  Lanham, MD—  3,038  3,007  4  3,038  3,011  6,049  261  20162002
Hampton Overlook3  Capitol Heights, MD—  4,602  7,521  826  4,602  8,347  12,949  804  20161989/1990
New Ridge—  Hanover, MD—  5,689  1,567  190  5,689  1,757  7,446  178  20160
Parkway1  Hanover, MD—  4,543  12,094  372  4,543  12,466  17,009  2,062  20141968/2012
Troy Hill1  Elkridge, MD—  1,409  5,033  495  1,409  5,528  6,937  1,140  20122003
V Street6  Washington, D.C.—  67,132  41,299  13,342  67,132  54,641  121,773  8,187  20151955/1963
Subtotal220  44,348  1,055,146  717,086  192,127  1,055,146  909,201  1,964,347  144,922  
Unamortized net premiums—  —  —  —  —  —  —  —  —  
Unamortized net deferred financing costs—  (30) —  —  —  —  —  —  —  
Intangible assets—  —  —  —  —  —  —  88,594  63,357  
Total220  $44,318  $1,055,146  $717,086  $192,127  $1,055,146  $909,201  $2,052,941  $208,279  


5

Terreno Realty Corporation

Schedule III

Real Estate Investments and Accumulated Depreciation – (Continued)

As of December 31, 2017

2019

(in thousands)

A summary of activity for real estate and accumulated depreciation for the years ended December 31, 20172019 and 20162018 is as follows:

   2017   2016 

Investment in Properties

    

Balance at beginning of year

  $1,343,038   $1,179,920 

Acquisition of properties

   319,666    130,944 

Disposition of properties

   (49,471)    (10,520) 

Construction in progress

   —      22,475 

Properties held for sale

   —      —   

Improvements, net of write-offs

   23,697    20,219 
  

 

 

   

 

 

 

Balance at end of year

  $1,636,930   $1,343,038 
  

 

 

   

 

 

 
   2017   2016 

Accumulated Depreciation

    

Balance at beginning of year

  $109,357   $77,641 

Amortization of lease intangible assets

   8,597    9,388 

Depreciation expense

   27,241    23,053 

Accumulated depreciation on properties held for sale

   —      —   

Disposition of properties and write-offs

   (5,381)    (725) 
  

 

 

   

 

 

 

Balance at end of year

  $139,814   $109,357 
  

 

 

   

 

 

 

Index to Financial Statements

20192018
Investment in Properties
Balance at beginning of year$1,845,776  $1,636,930  
Acquisition of properties289,591  227,058  
Disposition of properties(41,560) (56,985) 
Construction in progress28,154  7,434  
Improvements, net of write-offs32,233  31,339  
Balance at end of year$2,154,194  $1,845,776  

 20192018
Accumulated Depreciation
Balance at beginning of year$169,772  $139,814  
Amortization of lease intangible assets10,123  5,269  
Depreciation expense33,630  30,442  
Disposition of properties and write-offs(5,246) (5,753) 
Balance at end of year$208,279  $169,772  


6

Exhibit Index

Exhibit
Number
Exhibit Description

Exhibit

Number

3.1 

Exhibit Description

  3.1
3.2
3.3
3.4
3.5
4.1
10.1+4.2* 
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+


10.7+
10.8+
10.9+
10.8+10.10+
10.11+
10.12+
10.9+10.13+

Index to Financial Statements
10.14 
10.10
FourthFifth Amended and Restated Senior Credit Agreement, dated as of August  1, 2016,October 19, 2018, among Terreno Realty LLC, KeyBank National Association, both individually as a “Lender” and as “Administrative Agent”, KeyBanc Capital Markets, as joint lead arranger, MUFG Union Bank, N.A., as co-syndication agent and joint lead arranger, PNC Bank, National Association, as co-syndication agent, PNC Capital Markets LLC, andas joint lead arranger, Regions Bank, as co-syndication agent, Regions Capital Markets, as joint lead arrangersarranger and the several banks, financial institutions and other entities which may from time to time become parties as additional “Lenders” (previously filed as Exhibit 10.1 to the Company’sRegistrant’s Current Report on Form8-K on August 2, 2016October 25, 2018 and incorporated herein by reference).
10.1110.15 
10.1210.16 
10.1310.17 
10.14+10.18 


10.19+
10.15+10.20+
12.1*10.21+
21*
23*
24.1*
31.1*
31.2*
31.3*
32.1**
32.2**
32.3**
101*101.SCH*The following materials from Terreno Realty Corporation’s Annual Report on Form10-K for the year ended December 31, 2017, formattedInline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*Inline XBRL Taxonomy Definition Linkbase Document
104*Cover Page Interactive Data File (formatted as inline XBRL and with applicable taxonomy extension information contained in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements and (vii) ScheduleIII-Real Estate Investments and Accumulated Depreciation.Exhibits 101.*)


*

*Filed herewith.



**Furnished herewith.

+
+Exhibit is a management contract or compensatory plan or arrangement.



Index to Financial Statements


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on February 7, 2018.

6, 2020.

Terreno Realty Corporation

By:

Terreno Realty Corporation

By:/s/ W. Blake Baird

W. Blake Baird
Chairman and Chief Executive Officer

Power of Attorney

We, the undersigned directors of Terreno Realty Corporation hereby severally constitute and appoint W. Blake Baird and Michael A. Coke, and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, all amendments to this report, and generally to do all things in our names and on our behalf in such capacities to enable Terreno Realty Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ W. Blake Baird

W. Blake Baird

Chairman, Chief Executive Officer

and Director

(principal executive officer)

February 7, 20186, 2020

/s/ Michael A. Coke

Michael A. Coke

President and DirectorFebruary 7, 20186, 2020

/s/ Jaime J. Cannon

Jaime J. Cannon

Executive Vice President and Chief

Financial Officer

(principal financial and accounting

officer)

February 7, 20186, 2020

/s/ LeRoy E. Carlson

LeRoy E. Carlson

DirectorFebruary 7, 20186, 2020

/s/ Peter J. Merlone

Peter J. Merlone

David M. Lee
David M. Lee		DirectorFebruary 7, 20186, 2020

/s/ Douglas M. Pasquale

Douglas M. Pasquale

Gabriela F. Parcella
Gabriela F. Parcella
DirectorFebruary 7, 20186, 2020

/s/ Douglas M. Pasquale
Douglas M. Pasquale
DirectorFebruary 6, 2020
/s/ Dennis Polk

Dennis Polk

DirectorFebruary 7, 20186, 2020