Investors in Terreno Realty (TRNO 2.16%) could consider themselves in an interesting situation right now. The specialist in small industrial properties saw a major run-up in its stock price through 2021 before a sharp sell-off in the early days of the new year. That makes now a good time to consider whether it's too late to get in or there are reasonable expectations for more wealth-making ahead.
First, let's look at where this real estate investment trust (REIT) is now. After multiple acquisitions during the year, Terreno now has a portfolio of 253 buildings containing 15.1 million square feet and another 36 improved land parcels serving 554 customers in and around Los Angeles, northern New Jersey and New York City, San Francisco, Seattle, Miami, and Washington, D.C.
With a market cap of about $5.3 billion, Terreno is small potatoes compared to $110 billion (or so) Prologis -- whose portfolio of nearly a billion square feet in 4,700 buildings in 19 countries makes it one of the largest of all REITs regardless of sector. But Terreno didn't escape investor attention as industrial REITs overall went on a roll.
Image source: Getty Images.
Indeed. As news of supply chain woes and intense demand for warehouse and logistics space built through 2021, Terreno stock was a beneficiary, soaring from a 52-week low of $53.98 on March 5 to a 52-week high of $86.00 on Dec. 31. Pretty heady stuff for a relatively small player in what had been a typically staid business pre-pandemic.
Then, 2022 happened. Terreno stock has fallen by nearly 18% to about $70.77 a share. The company did just declare its third-straight quarterly dividend of $0.34 a share, and it's raised that payout for 11 straight years, including by 37% in the past three years. But the yield is still only about 1.86%, even at that depressed share price.
And that unimpressive yield could be a problem here. I've invested in Terreno myself but will likely wait until the company gets more generous with its payouts before committing more cash.
Wall Street thinks the income could be there. Analysts have put a consensus earnings estimate of $1.96 a share on Terreno stock for year-end 2022, about 14% higher than the $1.71 per share that the company just reported in its 2021 year-end figures, a performance that came in but a penny under the $1.72 consensus estimate. Then there's the payout ratio of about 79% based on cash flow, so Terreno managers don't appear to be overextending themselves based on that key metric.
The company's income prospects certainly appear to support that analysts' earnings estimate. According to Terreno's fourth-quarter 2021 update just issued, it spent $657.3 million on acquisitions in 2021. Their portfolio at year's end was also about 95% leased, and while tenant retention for the year was only 57%, that was being buffered by new and renewed leases, with rent increases averaging around 28% on about 2.6 million square feet, or about 15% of its total square footage.
And while the stock price is down, that could be partly due to the dilution effect of aggressive stock issuing during the year, including an offering of 4.02 million shares in Q4 alone, generating $300 million the company says it will use for further acquisitions.
And then there's the company's long-term record to consider. Terreno Realty's performance has strongly outpaced the broader market for some time now. For instance, its five-year total return stands at 201.6% compared to 117.8% for the S&P 500 over that same period.
TRNO Total Return Level data by YCharts.
But back to that dividend payout. Terreno is a REIT, a kind of equity that should perform as both a growth and income play, emphasizing the latter. Terreno has a nice record of consistent payouts, but they have consistently been in the 1.5% to 3% range for nearly a decade.
With that burgeoning portfolio of high-demand logistics space in markets with high barriers to entry, the way should be there to enrich the payout if there's a will.
