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Terreno Realty (TRNO) Sees High Occupancy, Rent Growth in Q4
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Terreno Realty Corporation (TRNO - Free Report) recently provided an update on its operating, investment and capital markets activity for the fourth quarter of 2023. The preliminary results highlight the robust demand for its properties, leading to healthy leasing activity, high occupancy levels and solid rent collections. Also, accretive acquisitions and developments are likely to support its growth in the upcoming period.
Operational Update
The demand for industrial real estate space remains buoyant, given the growth in industries and an expanding e-commerce market. Also, companies’ endeavors to improve supply-chain efficiencies have aided the need for industrial and logistics infrastructure and efficient distribution networks.
Reflecting this healthy demand and its portfolio strength, TRNO’s operating portfolio was 98.5% leased to 580 tenants as of Dec 31, 2023. This marked an uptick of 20 basis points (bps) sequentially and only a 10 bps fall from the year-ago quarter. The same-store portfolio, spanning 13.1 million square feet, was 98.5% leased as of the same date, representing a fall of only 20 bps sequentially and 30 bps year over year.
For the company’s improved land portfolio of 45 parcels spanning 152.4 acres, the leased rate was 94.6% as of Dec 31, 2023, compared with 96.3% and 92.5% recorded as of Sep 30, 2023, and Dec 31, 2022, respectively.
As a result of the high leased rates across its portfolio, TRNO was able to lock in higher rents on new and renewed leases during the quarter. The cash rents on new and renewed leases climbed 47.5%, with a tenant retention ratio of 75.6% for the operating portfolio and 0.0% for the improved land portfolio.
For 2023, the industrial real estate investment trust (REIT) witnessed a 55.5% increase in cash rents on new and renewed leases and a tenant retention ratio of 57.7% for the operating portfolio and 16.8% for the improved land portfolio.
Investment Update
Terreno Realty, which is focused on expanding its assets base 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, continued with its strategic buyouts during the fourth quarter. It purchased two properties comprising three buildings, encompassing 208,000 square feet for $73.2 million.
The company’s acquisition activity in 2023 aggregated $484 million. This included seven properties consisting of nine buildings covering 889,000 square feet, a 4.9-acre property to be redeveloped into a 92,000-square feet industrial distribution building and a 121-acre project entitled for 2.2 million square feet of industrial distribution buildings.
As of Dec 31, 2023, Terreno Realty’s portfolio included 259 buildings spanning 16 million square feet and 45 improved land parcels encompassing 152.4 acres.
Subsequent to the October-December quarter end, Terreno Realty purchased a Bellevue, WA-based industrial property comprising an industrial distribution building encompassing 16,000 square feet on 1.8 acres of land. The property, situated at 13045 SE 32nd Street adjacent to the intersection of I-90 and I-405, was acquired vacant for around $6.5 million and has an estimated stabilized cap rate of 5.8%.
On the disposition front, the REIT sold four properties consisting of three buildings covering 278,000 square feet and a 13.4-acre improved land parcel for $77 million. The transactions yielded an unleveraged internal rate of return of approximately 13.7%.
Encouragingly, as of Dec 31, 2023, Terreno Realty had seven properties under development or redevelopment. Post completion, these will comprise six buildings encompassing 1 million square feet and a 2.8-acre improved land parcel. The buildings are 71% pre-leased. The total expected investment for these projects is approximately $295.2 million.
Additionally, the company owns 62.7 acres of land entitled for future development of six buildings aggregating 1.1 million square feet.
Capital Market Activity
In 2023, Terenno Realty tapped the equity market with its at-the-market (ATM) equity offering program to raise capital. It issued 5.15 million shares of common stock at a weighted average offering price of $61.15 per share under its ATM equity offering program for gross proceeds of $315.1 million.
On the balance sheet front, as of Dec 31, 2023, the company had no borrowings outstanding under its $400 million revolving credit facility. It has a single $100 million senior unsecured note maturing in 2024 and none maturing in 2025.
Conclusion
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.
Nonetheless, stabilizing e-commerce sales growth, persistent macroeconomic uncertainty and a high interest rate environment pose key concerns for the company.
Terreno Realty currently carries a Zacks Rank #4 (Sell).
The company’s shares have gained 8.8% in the past three months compared with the industry’s growth of 16.6%.
The Zacks Consensus Estimate for Rexford Industrial Realty’s 2023 FFO per share is pegged at $2.18, indicating a year-over-year increase of 11.2%.
The Zacks Consensus Estimate for Stag Industrial’s 2023 FFO per share stands at $2.28, suggesting year-over-year growth of 3.2%.
The Zacks Consensus Estimate for Park Hotels & Resorts’ 2023 FFO per share is pegged at $2.03, implying a year-over-year rise of 31.8%.
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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Terreno Realty (TRNO) Sees High Occupancy, Rent Growth in Q4
Terreno Realty Corporation (TRNO - Free Report) recently provided an update on its operating, investment and capital markets activity for the fourth quarter of 2023. The preliminary results highlight the robust demand for its properties, leading to healthy leasing activity, high occupancy levels and solid rent collections. Also, accretive acquisitions and developments are likely to support its growth in the upcoming period.
Operational Update
The demand for industrial real estate space remains buoyant, given the growth in industries and an expanding e-commerce market. Also, companies’ endeavors to improve supply-chain efficiencies have aided the need for industrial and logistics infrastructure and efficient distribution networks.
Reflecting this healthy demand and its portfolio strength, TRNO’s operating portfolio was 98.5% leased to 580 tenants as of Dec 31, 2023. This marked an uptick of 20 basis points (bps) sequentially and only a 10 bps fall from the year-ago quarter. The same-store portfolio, spanning 13.1 million square feet, was 98.5% leased as of the same date, representing a fall of only 20 bps sequentially and 30 bps year over year.
For the company’s improved land portfolio of 45 parcels spanning 152.4 acres, the leased rate was 94.6% as of Dec 31, 2023, compared with 96.3% and 92.5% recorded as of Sep 30, 2023, and Dec 31, 2022, respectively.
As a result of the high leased rates across its portfolio, TRNO was able to lock in higher rents on new and renewed leases during the quarter. The cash rents on new and renewed leases climbed 47.5%, with a tenant retention ratio of 75.6% for the operating portfolio and 0.0% for the improved land portfolio.
For 2023, the industrial real estate investment trust (REIT) witnessed a 55.5% increase in cash rents on new and renewed leases and a tenant retention ratio of 57.7% for the operating portfolio and 16.8% for the improved land portfolio.
Investment Update
Terreno Realty, which is focused on expanding its assets base 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, continued with its strategic buyouts during the fourth quarter. It purchased two properties comprising three buildings, encompassing 208,000 square feet for $73.2 million.
The company’s acquisition activity in 2023 aggregated $484 million. This included seven properties consisting of nine buildings covering 889,000 square feet, a 4.9-acre property to be redeveloped into a 92,000-square feet industrial distribution building and a 121-acre project entitled for 2.2 million square feet of industrial distribution buildings.
As of Dec 31, 2023, Terreno Realty’s portfolio included 259 buildings spanning 16 million square feet and 45 improved land parcels encompassing 152.4 acres.
Subsequent to the October-December quarter end, Terreno Realty purchased a Bellevue, WA-based industrial property comprising an industrial distribution building encompassing 16,000 square feet on 1.8 acres of land. The property, situated at 13045 SE 32nd Street adjacent to the intersection of I-90 and I-405, was acquired vacant for around $6.5 million and has an estimated stabilized cap rate of 5.8%.
On the disposition front, the REIT sold four properties consisting of three buildings covering 278,000 square feet and a 13.4-acre improved land parcel for $77 million. The transactions yielded an unleveraged internal rate of return of approximately 13.7%.
Encouragingly, as of Dec 31, 2023, Terreno Realty had seven properties under development or redevelopment. Post completion, these will comprise six buildings encompassing 1 million square feet and a 2.8-acre improved land parcel. The buildings are 71% pre-leased. The total expected investment for these projects is approximately $295.2 million.
Additionally, the company owns 62.7 acres of land entitled for future development of six buildings aggregating 1.1 million square feet.
Capital Market Activity
In 2023, Terenno Realty tapped the equity market with its at-the-market (ATM) equity offering program to raise capital. It issued 5.15 million shares of common stock at a weighted average offering price of $61.15 per share under its ATM equity offering program for gross proceeds of $315.1 million.
On the balance sheet front, as of Dec 31, 2023, the company had no borrowings outstanding under its $400 million revolving credit facility. It has a single $100 million senior unsecured note maturing in 2024 and none maturing in 2025.
Conclusion
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.
Nonetheless, stabilizing e-commerce sales growth, persistent macroeconomic uncertainty and a high interest rate environment pose key concerns for the company.
Terreno Realty currently carries a Zacks Rank #4 (Sell).
The company’s shares have gained 8.8% in the past three months compared with the industry’s growth of 16.6%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Rexford Industrial Realty (REXR - Free Report) , Stag Industrial (STAG - Free Report) and Park Hotels & Resorts (PK - Free Report) . While PK sports a Zacks Rank #1 (Strong Buy) at present, REXR and STAG carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Rexford Industrial Realty’s 2023 FFO per share is pegged at $2.18, indicating a year-over-year increase of 11.2%.
The Zacks Consensus Estimate for Stag Industrial’s 2023 FFO per share stands at $2.28, suggesting year-over-year growth of 3.2%.
The Zacks Consensus Estimate for Park Hotels & Resorts’ 2023 FFO per share is pegged at $2.03, implying a year-over-year rise of 31.8%.
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.