From a dividend generation standpoint, Terreno Realty Corporation (NYSE:TRNO) was our best performing industrial Real Estate Investment Trust (REIT) in Q2. The company continues to show positive figures into Q3, especially the metrics associated with cash flow generation and profitability continuing to line up with the previous quarter’s numbers. Few metrics, such as occupancy, have decreased. Please review our Q3 versus Q2 comparison as listed above.
Terreno’s revenue, FFO per share, and dividend per share have shown two-digit growth, although their portfolio occupancy decreased from 94.4 to 90.2 percent (Q2 vs.Q3). The same thing occurred to the company’s same store occupancy due to 271,000 square feet of vacancy at the Interstate properties in the New Jersey/New York market. This is one of the six markets that company operates in. In addition, there are 85,000 square feet of unoccupied space at property that is being held for sale.
Terreno’s stock ($TRNO) has performed particularly well with a return of 6.4 percent year to date. The median sector return is a paltry negative 3.6 percent. The company’s dividend yield reports in at 3.3 percent for a 3.7 percent sector median. When all is said and done, a total return of 8.7 percent is fairly good when compared to the major indices.
Terreno Realty Corporation maintains an aggressive acquisition spree, although it has decreased a bit from previous years. This year they have added 1.8 million square feet which contributed to a 13 percent net increase in overall size. Last year Terreno grew more than one third in size. Management reaffirmed their intermediate goal to triple their US$1 billion assets in a letter to shareholders earlier this year. They plan to fund this with two thirds equity and one-third debt.
We were approached by several readers regarding the high valuation of the company. Terreno has definitely entered into premium territory with a price-to-FFO of 24x in a category where the sector median is at 18x. In addition, the company’s dividend yield of 3.3 percent is slightly below the median. Due to Terreno’s recent performance and aggressive growth goals, we believe that the company will remain in this territory for the long run.
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Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.