Bullish indicating open at $55-$60, IPO prices at $37
Tuesday, Deutsche Bank (ETR:DBKGn) initiated coverage on shares of Terreno Realty Corp (NYSE:NYSE:TRNO), a $5.86 billion industrial REIT currently trading at $58.74, with a Hold rating and a price target of $60.00.
The firm's analysis highlights Terreno's strong earnings growth, driven by its strategic focus on six major in-fill coastal port markets. This focus is expected to continue to provide a robust growth profile for the company in 2025 and 2026, building on its impressive 16.7% revenue growth over the last twelve months.
Despite the positive outlook on growth, the analyst expressed concerns regarding Terreno's external growth potential. The current stock trading implies a capitalization rate of 5.2%, which could pose challenges for the company in securing immediately accretive deals in the year ahead.
Such difficulties may impact the company's ability to maintain its historical valuation premium. InvestingPro data reveals the company has maintained dividend payments for 14 consecutive years and raised them for 11 straight years, demonstrating consistent shareholder returns despite market challenges.
The report noted that Terreno's market exposure, particularly in Southern California, which accounts for 16% of its revenues, might become a drag on its performance. However, Terreno's market exposure overall is still seen as a beneficial factor for its growth trajectory.
Concerns were also raised about the company's valuation relative to its peers. Currently, Terreno trades at 22.5 times price to funds from operations (P/FFO), compared to the group average of 17.3 P/FFO. The premium that Terreno enjoys, now at 5.2 times, has decreased from its 5-year average premium of 7.6 times, reflecting a slowdown in growth that is still considered solid despite being less robust than in previous years.
In summary, while Terreno Realty Corp has demonstrated a stronger earnings growth compared to its peers, due to its strategic market choices, Deutsche Bank anticipates challenges ahead that may affect the company's premium valuation and overall earnings growth.
InvestingPro analysis shows the company maintains a GREAT financial health score, with liquid assets exceeding short-term obligations. Discover more insights and 8 additional ProTips for TRNO through InvestingPro's comprehensive research platform.
In other recent news, Terreno Realty Corp has seen significant developments in its business operations. The company reported a notable 16.7% revenue growth over the last year. In a strategic move, Terreno Realty expanded its portfolio by purchasing a large industrial property in Brooklyn for approximately $156.3 million, and sold an industrial property in Union City, California for approximately $16.9 million.
Barclays (LON:BARC) recently adjusted its rating for Terreno Realty from "Overweight" to "Equal Weight", setting a new price target of $60.00 for the company's shares. The adjustment was primarily attributed to valuation considerations, despite the company's strong financial health and operational efficiency.
Meanwhile, Terreno Realty also reported an increase in occupancy to 97%, reflecting operational strength. However, the company saw its cash rent spreads fall to 24%. Despite this, Terreno Realty completed a $7.6 million acquisition in Washington D.C. and increased its borrowing capacity to $800 million.
Analyst views on Terreno Realty have been mixed. While firms like Piper Sandler and KeyBanc maintained an Overweight rating on the company's shares, Mizuho (NYSE:MFG) Securities downgraded the company from Neutral to Underperform. These are the recent developments surrounding Terreno Realty Corp.
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