Terreno Realty Corp (TRNO) stock intrinsic value fair value estimate & owner earnings analysis

Terreno Realty owns industrial buildings and improved land in six coastal U.S. markets: Los Angeles, the San Francisco Bay Area, Seattle, northern New Jersey / New York City, Miami and Washington, D.C. / Baltimore. Tenants are mainly logistics, distribution and light-industrial users on leases that are short (average remaining term about 4 years), so rents reset to market frequently. The company is a REIT with little debt: about $945 million at the end of 2025, a modest share of the portfolio's cost, and net debt of about 2.3 times its own adjusted EBITDA. How we measure earnings. We start from cash generated by operations, remove working-capital swings, subtract stock compensation (a real cost) and subtract the ongoing spending to keep buildings leasable (building improvements and leasing costs, which we treat as fully maintenance even though some is value-add). Property purchases and construction in progress are treated as discretionary growth investment and are not deducted. Gains on property sales are already excluded from operating cash flow. On this basis owner earnings per share were about $0.80 in 2022, $1.35 in 2023, $1.69 in 2024 and $1.77 in 2025. The 2023 step-up came from rents on renewed leases catching up to market and from a much larger portfolio; per-share growth in 2025 was about 5%. We anchor on the median of 2023 to 2025 ($1.69 per share) because the earlier years describe a much smaller company at pre-2022 rents. Base case, about $34 per share. Owner earnings start at $1.69 and grow 3% a year for five years (year one is below the 2025 actual of about 5%) and 2% a year for five more, then hold flat with no assumed growth. What supports the growth: same-store rental revenue rose 11.8% in 2025 from renewals at higher rents, first-half 2026 operating cash flow was about 12% above the prior year, and the company reports about 11% average annual cash same-store NOI growth since its 2010 IPO. We credit far less than that record because much of it reflects a rent surge and the lease-up of vacant purchases, and management's own measures are not something we rely on. We do not credit future acquisitions or new development: they are paid for largely by issuing new shares (about $277 million of stock issued in 2025), so they add to the share count as well as to earnings and we cannot show they create value beyond their cost. Construction already under way and paid for is reflected only as it appears in the earnings anchor. Bear case, about $19 per share. Rents on the short leases reset lower and vacancy rises: same-store occupancy already slipped from 98.2% to 97.2% during 2025, and New York City alone is about 13% of base rent. We assume owner earnings fall to about $1.20 per share (roughly 30% below the anchor, and well above the $0.80 earned in 2021-2022) and stay flat. Floating-rate borrowings (about 42% of debt) and $50 million of notes due in July 2026 add cost pressure, though leverage is low. Bull case, about $41 per share. The company's own rent resets keep working: earnings start at the 2025 run-rate of $1.77, grow 5% a year for five years and 3% for five more, then hold flat. The first-half 2026 cash flow supports the starting level. What we left out and why. After year ten we assume no growth in any case, because we cannot point to a contract or record that guarantees it, even though industrial land is scarce in these markets. If rents keep compounding beyond our assumptions the shares are worth more than our base case; if the 2023-2025 rent reset proves to be a one-time peak, they are worth closer to our bear case. Contractual annual rent increases are common in this type of lease, but we could not confirm their size from the annual report text and did not credit them. We could not reconcile a few older-year working-capital figures beyond the filed cash flow statements, and 2016 per-share figures do not deduct preferred dividends that were outstanding then. The margin-of-safety price is about $18 per share, roughly at the bear-case value, which leaves a wide cushion below the base case for a business whose rents are re-priced every few years.