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Terreno Realty Updates on Q3 Operations, Investment & Capital

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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 the third-quarter end, the company’sportfolio included 219 buildings, spanning 13.1 million square feet, and 22 improved land parcels across 85 acres. It also had one property under redevelopment.

Operational Update

The commencement of a 192,000-square-foot lease at the company’s 130 Interstate property resulted in the sequential increase in occupancy.

As of Sep 30, 2020, the company’s operating portfolio, exclusive of one property under redevelopment, was 97.3% leased. This marks an improvement of 130 basis points (bps) sequentially and 10 bps year on year. Similarly, the same-store portfolio (spanning around 12 million square feet) was 98.5% leased at the end of the quarter. This represents an expansion of 200 bps sequentially and 40 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 third quarter) — aggregating 0.9 million square feet — grew 20.3%, with a tenant retention ratio of 59.6%. The company executed a full-building lease, stabilizing a 220,000-square-foot redevelopment in Seattle.

Reflecting positive sentiments, the company’s shares were up 1.19% during Friday’s regular trading session.

Investment Update

The company continued to expand its portfolio on acquisitions in the third quarter. It purchased one industrial property for $6.3 million. The South San Francisco, CA-based property is fully leased to one tenant, spanning across 22,000 square feet of area. With this, the company’s acquisitions in the first nine months of 2020 totaled five properties, comprising three buildings aggregating 101,000 square feet and two improved land parcels totaling 5.5 acres, for $46.1 million in total.

Further, Terreno Realty has $32.4 million of acquisitions under contract, comprising around 52,000 square feet of space and 1.9 acres of improved land. Also, there are $12.4 million of acquisitions under letter of intent, having roughly 13,000 square feet and 2.2 acres of improved land. The company also had 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 $63 million.

Meanwhile, Terenno Realty sold one property in Miami Lakes, FL, for $22.2 million, generating an unleveraged internal rate of return of 7.4%. In addition, for the first nine months of 2020, the company sold four properties aggregating 532,000 square feet for $73.4 million, resulting in an unleveraged internal rate of return of 9.3%.

Capital Markets Activity

During the September-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 8,250 shares of common stock for gross proceeds of $0.5 million. Year to date, the company has raised $56 million under its at-the-market equity offering program.

The company refrained from share repurchases during the quarter. With this, it has a cash balance of around $156 million and no balance outstanding on its $250-million revolving credit facility. Encouragingly, it has no debt maturities for the remainder of the year.

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 during times when liquidity concerns are impacting the market.

Amid an e-commerce boom and supply-chain strategy transformations, demand for logistics infrastructure and efficient distribution networks has been increasing steadily in recent years. In addition, with the coronavirus pandemic and social-distancing practices, there is a significant surge in online purchase, fueling demand for logistic properties.

Furthermore, apart from the fast adoption of e-retail, the industrial real estate space is anticipated to benefit over the long run from a likely increase in inventory levels. This is because, in response to the pandemic along with trade disruptions, there is a sound possibility of a shift from a lean supply-chain strategy to a more resilient one. As such, industrial REITs like Terreno Realty, Duke Realty DRE, Prologis, Inc. PLD and Rexford Industrial Realty, Inc. REXR have scope to prosper. However, the pandemic’s adverse impact on economy and a development boom in some markets are concerns.

Shares of this Zacks Rank #2 (Buy) company have appreciated 14.2% over the past year, while its industry has declined 6.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



 

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