Terreno Realty Offers 5 Million Shares at $62.50: Assessing Its Impact

From time to time, companies partake in a secondary public offering of their stock to raise funds. The stock offering is set at a lower price to attract investor interest, and the funds derived may be used to pay down excessive debt, fund new acquisitions, invest in product development or cover an operational shortfall.

When this happens, the usual effect is an immediate fall in the price of shares, but depending on the reason for the public offering, the stock can sometimes regain its footing fairly soon.

Here is one real estate investment trust (REIT) that recently announced a public offering of 5 million shares. Will it be a positive for the stock over the long term?

Terreno Realty Corp. TRNO is an industrial REIT that owns and operates 252 properties in six major coastal U.S. markets. Those areas are Miami, New York City, Washington D.C., Seattle, Los Angeles and San Francisco.

Terreno Realty’s philosophy is that these markets all have large and growing populations, developed infrastructure for rapid distribution of goods and significant physical and regulatory barriers to the development of competing properties, according to the REIT’s website.

On Feb. 9, Terreno Realty announced that it will be offering 5 million shares of its common stock to the public at a price of $62.50 per share. The two underwriters of the offering, Goldman Sachs & Co. LLC and KeyBanc Capital Markets Inc., will have an additional 30-day option in which they can purchase up to 750,000 more shares of common stock. The offering will close on Feb. 13.

Terreno Realty stated its intention is to use the net proceeds from the offering for “future acquisitions.” One of those acquisitions is for a 121-acre property that is possibly in the works in Miami’s Countyline Corporate Park. Terreno Realty wants to build an industrial distribution building with 2.2 million square feet of space.

Miami is a well-established business area with strong rental demand. In the fourth quarter of 2022, the average asking rent for retail was almost 12% above fourth quarter of 2021, and during that time, vacancy rates had declined from 3.6% to 3.3%. In industrial space, the vacancy rate at the end of 2022 was 2.1%. Rental rates grew an outstanding 41.4% in 2022.

The offering announcement came well after the closing bell on a day when Terreno Realty had closed at $65.12, up $0.06 for the day. The next morning, the pre-market was showing Terreno Realty at a bid-to-ask price of $62.15 to $62.25. It had earlier been below $62 per share.

While the immediate impact is painful for present Terreno Realty shareholders, the longer-term potential, especially for new investors, could be quite positive, assuming the funds raised from the offering become accretive to earnings over time.

Since 2018, Terreno Realty’s quarterly dividend has grown from $0.22 to $0.40, an increase of 81%. Its most recent dividend yield was 2.45%, but with the price decline, that yield will rise to approximately 2.57%. Prior to the offering, Terreno Realty stock had a total return of 110.95% over the past five years.

So while the offering may bring some temporary volatility to the share price, its long-term effect could be quite positive for Terreno Realty — a stock with a very successful track record.

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