Terreno Realty Is Great, But We Sold (NYSE:TRNO)

We recently closed out of our position in Terreno (TRNO) and wanted to walk readers through our thought process and how we look at the company today.

We sold shares on 7/9/2026. For readers interested, we will post all the sales at the end of the article.

Before we sold, Terreno was flirting with the border between our neutral/overpriced ranges. Shares were trading at 31.4x consensus forward AFFO. Technically, it’s probably a little bit lower if we factor in that Q2 2027 AFFO per share will probably be higher than Q2 2026 AFFO per share. However, even adjusting for higher AFFO, the multiple would still be very large.

July 9th Thought Process

Terreno has been one of my favorite REITs for several years. I viewed it as a great long-term position. However, I am looking at shares trading over 30x forward AFFO while the 2-year Treasury is over 4% (4.16% presently), the 10-year is at 4.535%, and the 30-year is at 5.054%. I’m feeling a bit skeptical about multiples around 30x AFFO (or higher) in this environment. If we assume that REITs with more “normal” growth levels typically trade around 14x to 20x AFFO, then we have to assume several years of strong growth. While that’s certainly possible, I wouldn’t want to use it as the base scenario.

AFFO Estimates And Multiple

Our sheets are currently using a forward estimate of $2.19.

If we were to use AFFO estimates for the next 4 quarters starting with Q3 2026, then the consensus estimate would increase to $2.25. That’s better, but not substantially better.

Even if we use the $2.25 value, at $68.68 shares would be trading a hair over 30.5x forward AFFO estimates.

If we use $2.18 or $2.19, the multiple is 31.36x or 31.50x, respectively.

That’s a pretty high multiple given the Treasury yields. While I still really like TRNO, I felt it was prudent to harvest gains here.

Note: TRNO has rallied even higher since we closed our position. As of 7/15/2026, shares are at $72.09.

Why TRNO Can Achieve A High Multiple

Our thesis played out well with the industrial real estate portfolio delivering strong growth in same property NOI (Net Operating Income). That drove significant growth in AFFO per share, which supports TRNO trading at pretty high multiples of AFFO per share. The market likes seeing strong growth across several key indicators. However, the valuation still hit a point where I felt it was prudent to just take the gains.

Issuing Shares

TRNO was issuing equity during Q1 2026:

They felt it was reasonable to issue it at $64.85, and I agree with them. That was a very reasonable price for choosing to issue new equity. Issuing at $68.68 (5.9% higher) would make even more sense. That’s the right choice for management as they look to maximize value for shareholders.

Impact Of Treasury Rates

The last time I purchased TRNO was in 2023 at $62.99. That’s not dramatically lower than the current price. The AFFO multiple was similar. What changed?

Well, the interest rate scenario changed quite a bit as shown by the 10-year and 30-year Treasury rates:

The 10-year Treasury yield is up 60 basis points (that means 0.60%) and currently trending higher (based on the current yield relative to the moving averages). The 30-year is up just over 100 basis points and also in a trend higher.

That feels ugly. It’s been less of an issue for TRNO since they have such little debt on their balance sheet. Consequently, they have been less exposed to interest rate pressure than most equity REITs. However, it makes it harder to justify high multiples.

Adjusted EBITDA/Total Enterprise Value

Doing a full model for “Market Implied Cap Rate” is pretty slow. In theory it seems like it would be quick to update, but in practice it can get messy doing quarter after quarter.

A simpler method is calculating adjusted EBITDA to Total Enterprise Value. It is less precise (which is negative), but it factors in overhead (which is positive).

Often there won’t be preferred stock or minority interest, which makes it even simpler.

The bigger question is simply which version of EBITDA we want to use. Do we use the most recent quarter? Do we try to run a forward estimate? Sometimes the answers matter a great deal, and sometimes they don’t. In this case, the picture is pretty clear regardless. One adjustment I really like to make, though, is to revise “adjusted EBITDA” by deducting stock-based compensation. That’s fundamentally overhead by another name.

Goal Of Calculation

This is a way to approximate the amount of adjusted EBITDA the company is producing relative to the total value assigned to the company.

It can be a quick way to compare REITs. However, investors should be aware that all REITS do not simply deserve to trade at the same valuation. That would be silly. Some properties are simply more desirable, and some management teams are superior. For now I’m simply going to refer to adjusted EBITDA minus stock-based compensation as “revised EBITDA.” I wanted to compare TRNO with Rexford (REXR).

Using Q1 2026, I came to the following estimates when removing stock-based compensation:

• TRNO at $68.62 has a revised EBITDA yield of 3.96%. This is why it makes sense for TRNO to issue shares.

• REXR at $34.42 has a revised EBITDA yield of 6.12%. This is why it makes sense for REXR to repurchase shares.

Note: We don’t want to use growth rates in adjusted EBITDA or revised EBITDA unless we control for the expected change in the shares outstanding and net debt outstanding.

That’s the gap in valuation. It is very material.

Hypothetically, what if REXR climbed all the way to our “overpriced” level? The revised EBITDA yield would drop from 6.12% to 4.79%.

Final Thoughts

I expect that TRNO will do a better job (than REXR) of growing every metric over the next year or two. However, I don’t expect it to be remotely large enough to offset the enormous gap in these valuation metrics.

We currently view TRNO as overpriced despite the company’s strong execution. Even after our sale, shares continued climbing. We’ll continue watching the company closely because it’s still one of my favorite REITs. I simply don’t like today’s valuation. Here is the record of our sale: