Terreno Realty Corporation TRNO 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.