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Terreno (TRNO) Sees Solid Demand, Leases New Jersey Asset

Terreno Realty TRNO is witnessing healthy demand for its properties. Recently, the company executed a lease for 192,000 square feet in Northern New Jersey.

This lease with a transportation and logistics services provider will start on Apr 1, 2023, and expire in November 2028. To facilitate this, an early termination agreement had been executed by TRNO with an existing tenant in the 192,000-square-foot space, effective Mar 31, 2023.

The demand for industrial real estate space has been high amid an e-commerce boom, growth in industries and companies making efforts to improve supply-chain efficiencies. Terreno Realty is also experiencing solid demand for its properties.

As of Dec 31, 2022, TRNO’s operating portfolio, excluding one property under redevelopment, was 98.6% leased. This marks an expansion of 20 basis points (bps) sequentially and 310 bps year over year. The same-store portfolio (spanning 12.1 million square feet) was 99.5% leased at the end of the quarter, up 60 bps sequentially and 140 bps year over year.

Moreover, the improved land portfolio of 46 parcels, excluding two parcels under redevelopment, aggregated roughly 161.4 acres. The same was 92.5% leased as of Dec 31, 2022, up 90 bps sequentially.

Terreno Realty was able to lock in higher rents on new and renewed leases. These reflected solid industrial real estate market fundamentals and portfolio strength.

For the fourth quarter of 2022, this industrial REIT witnessed a 45.2% increase in cash rents on new and renewed leases, with a tenant retention ratio of 80.6% for the operating portfolio and 0.0% for the improved land portfolio. For the full-year 2022, TRNO experienced a 49.5% increase in cash rents on new and renewed leases.

Apart from the fast adoption of e-commerce, industrial real estate space is poised 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 will offer opportunities to industrial landlords, including Terreno Realty, Prologis PLD and First Industrial Realty Trust, Inc. FR, to enjoy a favorable market environment.

Terreno Realty is banking on such opportunities and is focused on expanding its portfolio through acquisitions. During the October-December quarter, TRNO acquired four properties comprising three buildings, encompassing roughly 65,000 square feet, and one improved land parcel of roughly 2.8 acres for a total of $59.4 million.

For the full-year 2022, Terreno Realty’s acquisition activity included 20 properties. These comprised 17 buildings encompassing roughly 831,000 square feet and 11 improved land parcels of about 35.7 acres for a total of $414.8 million.

However, elevated supply in several markets, which is likely to fuel competition, and the stabilization of e-commerce sales growth raise concerns for Terreno Realty. Also, interest rate hikes add to the company’s woes.

Shares of Zacks Rank #4 (Sell) Terreno Realty have climbed 16.6% in the past three months compared with the industry’s growth of 8.6%.

Zacks Investment Research
Zacks Investment Research

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Prologis carries a Zacks Rank of 3 (Hold) at present. Prologis’ long-term growth rate is projected at 8.6%. The Zacks Consensus Estimate for PLD’s 2023 funds from operations (FFO) per share is pegged at $5.55. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First Industrial Realty Trust carries a Zacks Rank of 3 at present. First Industrial’s 2022 revenues are expected to increase 12.09% year over year. The Zacks Consensus Estimate for FR’s 2022 FFO per share has been revised marginally upward in the past month to $2.26.

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

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