Terreno Realty Corporation (TRNO)

I've put together a preliminary look at Terreno Realty Corporation (TRNO). The September 30 10-Q should be out in about a month and I'm anxious to see results of operation after acquiring some new real estate in the third quarter. Specifically, it will be interesting to see whether they've managed to secure additional tenants for their existing San Fransisco Bay property and what the occupancy rate of the newly acquired New Jersey property is.

TRNO is a newly organized corporation focused on acquiring, owning and operating industrial real estate in Los Angeles, New Jersey/New York, San Fransisco Bay, Seattle, Miami, and D.C./Baltimore. Financing for property buys in the first two quarters was 100% equity and it looks like financing in the third quarter was planned to be approximately 50/50 debt/equity.

An aerial view of the balance sheet at June 30, 2010:

Current Assets : $162.3 million
Land & Building: $12.6 million
Other Assets: $1.3 million
Total Assets $176.2 million

Liabilities: $7.9 million
Equity: $168.3 million
Total L&E: $176.2 million

TRNO reported a net loss for the first two quarters of 2010 and as with most real estate ventures, I don't anticipate a profit for some time to come. But considering that TRNO is so far leveraging these buys at less than 0.5 debt to equity, we should see cash flow from operations sooner rather than later if they can secure some solid real estate with high occupancy.

Without knowing enough about TRNO's current and prospective properties, it's difficult to say with certainty in this case, but in a broad sense the markets TRNO is attacking are arguably the most distressed real estate markets in the country. In theory, TRNO should have been (and should be) able to snatch some prime real estate at rock bottom prices. On the other hand, rock bottom relative to what? The hyper inflated prices before the crash or intrinsic value?

As for their leverage strategy, according to the June 30 10-Q the New Jersey property will be $36 million leveraged 50/50 at an interest rate of 5.19%. At current rates, one could argue that heavier leverage may be worth the risk for a potentially greater return on equity. Unless of course, further deflation is on the horizon.

Time will tell. I'm going to keep an eye on it for now.

Terreno Realty Corporation website