Is it too late to buy Terreno Realty?

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Investors in Terreno Realty (NYSE: TRNO) might consider themselves in an interesting situation right now. The small industrial property specialist saw a strong rise in its share price through 2021 before a strong sell-off at the start of the new year. Now is a good time to wonder if it’s too late to get in or if there are reasonable expectations for more wealth to come.

Let’s first see where this real estate investment trust (REIT) stands. After several acquisitions during the year, Terreno now has a portfolio of 253 buildings covering 15.1 million square feet and 36 other enhanced land parcels serving 554 customers in and around Los Angeles, northern New Jersey and New York, San Francisco, Seattle, Miami, and Washington, DC

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With a market capitalization of approximately $5.3 billion, Terreno is a small potato compared to $110 billion (approximately) Prologis – whose portfolio of nearly one billion square feet in 4,700 properties in 19 countries makes it one of the largest of all REITs, regardless of sector. But Terreno has not escaped the attention of investors, as industrial REITs have taken off globally.

A rising price that is ebbing now, but the yield is still weak

Indeed. As news of supply chain issues and intense demand for built-up warehousing and logistics space through 2021, Terreno shares benefited, rising from a low of $53.98 52-week high on March 5 to a 52-week high of $86.00 on December 31. heady stuff for a relatively small actor in what had been a typically stilted business before the pandemic.

Then, 2022 arrived. Terreno stock fell nearly 18% to around $70.77 per share. The company just declared its third straight quarterly dividend of $0.34 per share, and it’s increased that payout for 11 straight years, including 37% in the last three years. But the yield is still only around 1.86%, even at this depressed share price.

And that unimpressive yield could be an issue here. I’ve invested in Terreno myself, but I’ll probably wait for the company to become more generous with its payouts before committing more money.

Wall Street thinks the income might be there. Analysts have set a consensus earnings estimate of $1.96 per share on Terreno stock for the end of 2022, about 14% higher than the $1.71 per share the company just released. in its 2021 year-end figures, a performance that brought in just a penny. below the consensus estimate of $1.72.

Then there’s the payout ratio of around 79% based on cash flow, so Terreno managers don’t seem to be overextending based on this key metric. Terreno has a good track record of consistent payouts, but it has consistently been in the 1.5% to 3% range for nearly a decade, even before the recent surge in stock prices. The REIT can’t directly control its stock price, of course — which is one side of the percentage return equation — but it can the dividend.

Building the portfolio justifies future payouts

The company’s earnings outlook certainly appears to support analysts’ earnings estimate. According to Terreno’s just-released Q4 2021 update, it spent $657.3 million on acquisitions in 2021. The REIT’s portfolio at year-end was also approximately 95% leased. , and while tenant retention for the year was only 57%, this was being amortized by new and renewed leases, with rent increases of approximately 28% on approximately 2.6 million square feet, or approximately 15% of its total area.

And while the share price is down, that could be partly due to the dilutive effect of aggressive stock issuances during the year, including a 4.02 million share offering. in the fourth quarter alone, generating $300 million that the company says it is using for new acquisitions.

And then you have to consider the long-term balance sheet of the company. Terreno Realty’s performance has significantly outpaced the broader market for some time now. For example, its five-year total return is 201.6% versus 117.8% for the S&P500 over this same period.

TRNO Total Performance Level Chart

TRNO Total Return Level given by Y-Charts

But back to that dividend payout. Terreno is a REIT, a kind of equity that should work as both a growth and income play, with an emphasis on the latter. With this burgeoning portfolio of high-demand logistics space in markets with high barriers to entry, if there is a will to enrich payment, there should be a way to make it happen.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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