Terreno Realty Corporation (TRNO), a real estate investment trust (:REIT), has recently acquired an industrial building spanning 110,000 square feet in Tukwila, Washington, for approximately $8.0 million. The company also assumed a mortgage loan worth $5.0 million with a fixed annual interest rate of 6.31% scheduled to mature in July 2016. The property was purchased from an unnamed seller.
The acquisition is part of the long-term strategy of the company to abstain from pursuing ground-up development or land investments, and instead own functional and flexible buildings in infill locations that can be modified to accommodate single and multiple tenants at discounts to replacement cost.
The acquired property is presently 100% leased to six tenants. The industrial building is strategically located in the northern Kent Valley submarket, in close proximity to the Sea-Tac International Airport – the fourth largest air-cargo airport in the Northwest. The property is also adjacent to Interstate 5 – the key highway on the West Coast of the U.S, and Interstate 405 – a major north-south highway in Southern California. Consequently, the property brings on board unmatched distribution space for the company.
The estimated stabilized cap rate of the asset is 6.3%. Total acquisition cost of the property included the initial purchase price, the effects of marking assumed debt to market, due diligence and closing costs, estimated near-term capital expenditures, and leasing costs necessary to achieve stabilization.
San Francisco-based Terreno Realty owns and operates industrial real estate properties primarily in six major coastal markets of the U.S. These include the high barrier-to-entry markets of Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington D.C./Baltimore.
As of September 30, 2012, Terreno Realty owned 63 buildings aggregating 4.8 million square feet in high barrier-to-entry markets of Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington D.C./Baltimore. The properties were approximately 92.6% leased to 97 tenants.
Each of the locations in which Terreno Realty has a significant presence is characterized by a well-established transportation network – seaports, airports, highways and railways that are essential for the swift distribution of goods. In addition, available land in these markets is scarce, resulting in steep barriers for the development of new and competing properties.
We have a Neutral rating on Terreno Realty, which presently has a Zacks #3 Rank translating into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for DCT Industrial Trust Inc. (DCT), one of the competitors of Terreno Realty.
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