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Terreno Provides Q2 Operating, Investing and Capital Update

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Zacks Equity Research
·5 min read
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Terreno Realty Corporation TRNO announced an update on its operating, investment and capital activities.

As of the second-quarter end, the company’sportfolio included 218 buildings, spanning 13.1 million square feet, and 22 improved land parcels across 85 acres. It also had two properties under redevelopment.

Operational Update

A 192,000-square-foot lease expiration at 130 Interstate property and a 50,000-square-foot lease expiration at its Whelan property resulted in a sequential decline in June-end occupancy at the company’s portfolio.

Occupancy at the operating portfolio, which stood at 96%, declined 180 basis points (bps) and 190 bps sequentially and year over year, respectively. Similarly, the same-store portfolio (spanning around 12 million square feet) was 96.5% leased at the end of the second quarter. This represented a decline from 98.0% at Mar 31, 2020, and 97.7% in the previous-year quarter.

Nonetheless, despite the pandemic-led concerns, the company was able to lock in higher rents on new and renewed leases, indicating resilience in its portfolio. In fact, cash rents on new and renewed leases (commenced during the second quarter) — aggregating 0.5 million square feet — grew 38.2%, with a tenant retention ratio of 18.4%.

However, Terreno’s tenants have been hard hit due to the pandemic, impacting their ability to meet rental obligations.  Amid this, the company continued to selectively defer rent collections from tenants.

As of Jul 7, Terreno received requests for rent deferral or abatement from tenants aggregating 7% of its annualized base rent (“ABR”). Of this, tenants representing 2.7% of ABR were granted deferrals, while tenants accounting for 1.8% of ABR were denied such rental relief. Further, tenants aggregating 1.6% of ABR withdrew their requests and the company is in continued discussions with tenants that contribute 0.05% of ABR.

All said, Terreno received 93% of its June rent, while 36% of its tenants requested rental relief.

Investment Update

The company continued to expand its portfolio on acquisitions in the second quarter. It purchased two industrial properties for $10.1 million.

This included a fully-leased industrial distribution building, 36 South Hudson Street and an improved land parcel spanning 2.8 acres in Kent, WA.

With this, the company’s acquisitions in the first half of 2020 totaled four properties for an aggregate price of $39.8 million.

It also disposed of three properties, spanning 340,000 square feet, in Maryland’s Baltimore/Washington Corridor. Total sale price was $51.3 million.

Capital Markets Activity

During the June-end quarter, the company tapped the equity market on the back of its at-the-market equity offering program to raise capital. Specifically, it issued 619,300 shares of common stock for gross proceeds of $32.7 million. The company refrained from share repurchases during the quarter. With this, it has a cash balance of around $150 million and full availability under its $250-million revolving credit facility. Encouragingly, it has no debt maturities for the remainder of the year.

Conclusion

Terreno’s efforts to expand and strengthen its portfolio on the back of acquisitions are a strategic fit. It also indicates that the company is financially sound to execute such deals during times when liquidity concerns that have lingered in the market.

However, rent-relief measures offered by the company during the pandemic will likely take a toll on its top-line growth.

Shares of this Zacks Rank #4 (Sell) company have rallied 3.8% over the past year against the industry’s decline of 8.7%.

 


Stocks to Consider

City Office REIT, Inc.’s CIO funds from operations (“FFO”) per share estimate for the ongoing year have been unchanged at $1.11 over the past 30 days. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gladstone Land Corporation’s LAND FFO per share estimate for 2020 has been unchanged at 68 cents over the past month. It currently carries a Zacks Rank of 2.

Cousins Properties Incorporated’s CUZ Zacks Consensus Estimate for 2020 FFO per share has revised marginally upward to $2.74 over the past month. The company currently carries a Zacks Rank of 2.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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