Industrial REITs TRNO, REXR post stellar 4Q asset coverage.
While the REIT industry in general continues to post strong credit metrics, two industrial companies stood out at 4Q with particularly strong asset coverage. As of December 31, 2018, Rexford Industrial Realty's (REXR) cost basis in land of $1.3 billion covered total debt by 1.7x, while the same ratio for Terreno Realty (TRNO) came in at 1.8x. This analysis excludes the value of the related buildings and in-place tenants, which would otherwise increase coverage to 3.6x for REXR and 3.8x for TRNO.
The unusually strong coverage ratio from land value is being driven by a number of factors. Leverage for both companies is relatively low with REXR's book leverage ending the year at 26% (20% at market) and TRNO coming in at 25% (18%). But geography and markets also play a role. Both companies focus on infill properties in coastal markets where land values are high, resulting in a greater proportion of land value to total property value. For lenders, this means reduced exposure to building obsolescence or tenant credit, as even a 30% recovery on property book values would produce a full payoff of all lender balances.
TRNO's private placement notes are BBB- by Fitch while REXR's debt was recently upgraded by Fitch to BBB.