Terreno Realty Corporation (TRNO - Snapshot Report), a real estate investment trust (REIT), has recently acquired an industrial building in Kearny, New Jersey, for approximately $32.6 million. The purchase price included the assumption of a mortgage loan of $14.8 million collateralized by the property. The mortgage loan bears a fixed annual interest rate of 5.5% and is scheduled to mature in March 2021.
The acquired property spanning 211,000 square feet of space is presently 100% leased to a single tenant. The estimated stabilized cap rate of the asset is 5.6%, which is calculated as annualized cash basis net operating income stabilized to market occupancy (generally 95%) divided by its total acquisition cost.
Total acquisition cost 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.
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 barriers-to-entry markets of Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington D.C./Baltimore.
Each of these locations 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.
As part of its corporate strategy, Terreno Realty does not pursue ground-up development or land investments on its own. Alternatively, the company acquires functional and flexible buildings in infill locations that can be modified to accommodate single and multiple tenants at discounts to replacement cost.
We have a Neutral rating on Terreno Realty, which presently has a Zacks #4 Rank translating into a short-term Sell rating and indicates that the stock is expected to perform well below the overall U.S. equity market for the next 1–3 months. We also have a Neutral recommendation and a Zacks #3 Rank (short-term Hold) for AMB Property Corp. , a competitor of Terreno Realty.