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Terreno Realty (TRNO) Sees Solid Rent Growth & Occupancy in Q3

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Terreno Realty Corporation (TRNO - Free Report) recently provided an update on its operating, investment and capital markets activity for the third quarter of 2023. Owing to a robust industrial real estate market, the company witnessed solid rent growth during the quarter, and occupancy remained high throughout its portfolio.

The company’s cash rents on new and renewed leases in the quarter climbed 38.9%, with a tenant retention ratio of 61.4% for the operating portfolio and 100.0% for the improved land portfolio. The metric was 48.6%, excluding the one fixed-rate lease renewal for 93,000 square feet in Oakland, CA.  

The demand for industrial real estate space is escalating, given the growth in industries and an e-commerce boom. Also, companies’ endeavors to improve supply-chain efficiencies amid the rising demand for logistics infrastructure and efficient distribution networks have aided the need for such spaces.

Reflecting this healthy demand, TRNO’s quarter-end occupancy remained high at 98.3%, representing an uptick of 50 basis points (bps) sequentially and only a 10 bps fall from the prior-year quarter.

For the same-store portfolio, the quarter-end occupancy was 98.5%, up 10 bps from the prior quarter and 40 bps year over year.
As of Sep 30, 2023, this industrial real estate investment trust’s portfolio included 257 buildings spanning 15.8 million square feet and 46 improved land parcels encompassing 165.8 acres.

Terreno Realty, which is focused on investing in functional assets at in-fill locations in areas surrounded by high concentrations of already developed land and existing buildings, continued with its expansion efforts during the third quarter.

It concluded the buyout of a 4.9-acre property for around $14.8 million. The company intends to redevelop the property into a 92,000-square-foot rear-load industrial distribution building for an expected investment of $40.6 million. It anticipates to finish redeveloping the building in the first quarter of 2025.

Moreover, from the beginning of the year through Sep 30, TRNO’s acquisitions totaled five properties for $410.8 million. The company has approximately $76.3 million of acquisitions under contract as of Sep 30, 2023.

In addition, as of the same date, this industrial REIT had eight properties under development or redevelopment. Post completion, these will comprise seven buildings encompassing roughly 1.2 million square feet, which are approximately 68% pre-leased and one 2.8-acre improved land parcel, with a total expected investment of nearly $336.1 million.

Further, highlighting its capital-allocation strategy, which seeks to preserve financial flexibility to facilitate long-term growth, the company disposed of a 100% leased property in Hanover, MD, for $18 million subsequent to the third-quarter end.

Speaking of Terreno Realty’s capital market activity, during the July-September quarter, it issued 1,575,173 shares of common stock at a weighted average offering price of $60.78 per share under its at-the-market equity offering program for gross proceeds of $95.7 million.

As of Sep 30, 2023, the company had no borrowings outstanding under its $400 million revolving credit facility and no debt maturities in the current year.

Hence, with a solid operating platform, robust balance sheet position and strategic expansion moves, TRNO seems well-positioned to capitalize on long-term growth opportunities amid favorable industry fundamentals.

It is primarily engaged in owning and operating industrial real estate in six major coastal U.S. markets — Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington, DC. These markets are characterized by strong demand generators such as high population densities, high volume distribution points and logistics infrastructure, and low supply.

Nonetheless, stabilizing e-commerce sales growth and a high interest rate environment pose concerns for TRNO.

Shares of this Zacks Rank #2 (Buy) company have gained 1.5% in the year-to-date period against the industry’s fall of 10.4%.

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Other Stocks to Consider

Some other top-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , Americold Realty Trust (COLD - Free Report) and EastGroup Properties (EGP - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Welltower’s 2023 funds from operations (FFO) per share has been revised marginally upward over the past week to $3.56.

The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been increased marginally over the past month to $1.26.

The Zacks Consensus Estimate for EastGroup Properties’ current-year FFO per share has moved marginally northward over the past week to $7.64.

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

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