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Terreno Realty (TRNO) Offers Q4 Operations & Investment Update

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

As of fourth-quarter end, the company’s portfolio included 222 buildings, spanning 13.2 million square feet, and 25 improved land parcels spanning roughly 91.5 acres. It also had one property under redevelopment.

Operational Update

As of Dec 31, 2020, the company’s operating portfolio, exclusive of one property under redevelopment, was 97.8% leased. This marks an improvement of 50 basis points (bps) sequentially and 100 bps year on year. Similarly, the same-store portfolio (spanning around 12 million square feet) was 98% leased at the end of the quarter. While this represents a contraction of 50 bps sequentially, the figure was up 20 bps year over year.

Moreover, the company was able to lock in higher rents on new and renewed leases, reflecting resilience in its portfolio. Cash rents on new and renewed leases (commenced during the fourth quarter) — aggregating 0.6 million square feet — grew 10.9%, with a tenant retention ratio of 64.3%. For the full year, cash rents on new and renewed leases — aggregating 0.6 million square feet — grew 10.9%, with a tenant retention ratio of 64.3%.

Reflecting positive sentiments, the company’s shares were up 0.86% during Friday’s regular trading session.

Investment Update

The company continued to expand its portfolio on acquisitions in the fourth quarter. It acquired six industrial properties comprising three buildings encompassing roughly 63,000 square feet and three improved land parcels spanning 6.5 acres for a total of$50.5 million.

With this, the company’s acquisitions in 2020 totaled 11 industrial properties, comprising six buildings aggregating 164,000 square feet and five improved land parcels totaling12 acres, for $96.7 million in total.

Further, Terreno Realty has $67.8 million of acquisitions under contract, comprising around 266,000 square feet of space and 5.8 acres of improved land. Also, there are $18 million of acquisitions under letter of intent, having roughly 67,000 square feet and 2.2 acres of improved land.

The company also has one property under redevelopment (SoDo Row in Seattle). On completion, it will comprise roughly 234,000 square feet, with a total expected investment of around $64 million.

Meanwhile, for the full-year 2020, Terenno Realty sold four properties for $73.4 million, generating an unleveraged internal rate of return of 9.3%.

Capital Markets Activity

During the December-end quarter, Terenno Realty tapped the equity market on the back of its at-the-market equity offering program to raise capital. It specifically issued 143,020 shares of common stock for gross proceeds of $8.8 million. For full-year 2020, the company has raised $64.8 million under its at-the-market equity offering program.

The company refrained from share repurchases during the quarter. Following the quarter end, the company paid off its last secured mortgage loan with an $11.2 million balance and 5.49% interest rate. Its all outstanding debt is now unsecured. With this, it has a cash balance of around $83 million and no balance outstanding on its $250-million revolving credit facility. Encouragingly, it has no debt maturities in 2021.

Conclusion

Terreno Realty’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.  It targets functional assets at in-fill locations which enjoy high-population densities and are located near high-volume distribution points. Through such efforts, the company is well poised to fortify its portfolio in the six major coastal U.S. markets — Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington, DC — which display solid demographic trends and witness healthy demand for industrial real estates.

Notably, there has been a significant increase in e-commerce’s share of total retail sales, spurring demand for warehouse and distribution spaces. Apart from the fast adoption of e-commerce, the industrial real estate space is anticipated to gain traction over the long run from a likely rise in the inventory levels of companies as a precaution for any supply-chain disruption. This, in turn, will likely keep supporting industrial landlords like Terreno Realty, Prologis PLD, Duke Realty Corp. DRE and Rexford Industrial Realty, Inc. REXR to enjoy a favorable market environment. However, the pandemic’s adverse impact on economy and a development boom in some markets are concerns.

Terreno Realty currently has a Zacks Rank #3 (Hold). Its shares have appreciated 5.1% over the past six month, outperforming its industry’s rally of 4.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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