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Rexford Industrial Realty: Leaning Bullish On This Industrial REIT

Trending 1 year ago
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Warehouse distribution

Marcus Lindstrom

In 2022 I started buying shares of REITs successful sectors that were retired of favor, including compartment towers, business REITs, and self-storage REITs. These 3 sectors were perennial outperformers successful anterior years arsenic they continued to spot awesome maturation successful FFO/share and dividends, on pinch aggregate description . As markets struggled successful 2022, nan rich | valuations of these sectors caught up pinch them, but for agelong word investors, I deliberation it provided a buying opportunity. The 3 business REITs I had my oculus connected astatine nan clip were Prologis (PLD), Terreno Realty (TRNO), and Rexford Industrial Realty (NYSE:REXR). I ended up choosing Terreno arsenic my first prime and put a bully chunk of my Roth IRA successful nan stock. I haven’t written astir Rexford yet, but it is adjacent nan apical of my REIT watchlist correct now.

Investment Thesis

Rexford is simply a accelerated increasing business focused exclusively connected Southern California business existent estate. Their markets person respective tailwinds which should let continued maturation for Rexford, and astir of their lease portfolio rolls successful nan adjacent 5 years, which should lead to awesome rent growth. One of nan reasons I haven’t bought shares yet is Rexford’s perennially rich | valuation, which sits coming astatine a price/FFO of 30.9x. The output sits astatine 2.5%, and nan dividend maturation has accelerated complete nan past mates years. While I don’t ain shares yet, Rexford has been connected my watchlist for a while. I scheme to bargain shares connected immoderate meaningful dip, and I’m leaning into nan bullish campy pinch shares conscionable complete $60.

Company Overview

While different REITs person a diversified footprint, Rexford has decided to attraction each its attraction connected nan Southern California business existent property market. While that does present immoderate attraction consequence for investors, nan Southern California marketplace has a batch of characteristics that supply favorable tailwinds for a REIT for illustration Rexford. The marketplace has very debased vacancies and diminishing proviso of business existent estate. The deficiency of developable onshore on pinch restrictive zoning rules make Rexford an absorbing finance successful nan country’s highest request business market.

SC market

Southern California Market (rexfordindustrial.com)

Rexford’s portfolio is heavy weighted towards 3 sectors: proscription and warehousing (24.3% of ABR), wholesale waste and acquisition (21.8%), and manufacturing (20.3%). Despite nan geographic and manufacture concentration, Rexford is diversified among its apical 10 tenants, which only relationship for 12.6% of ABR. Rexford is decidedly connected nan higher maturation broadside of business REITs, and I deliberation they will proceed to spot awesome rent maturation successful coming years.

Looking astatine their lease expirations, they person a important chunk of their portfolio expiring each twelvemonth until 2027. Basically, anyplace from 13-15% of nan leases will expire each year, truthful complete 70% of nan leases will rotation complete successful nan adjacent 5 years. My conjecture is that this will lead to awesome maturation for years to come. While nan biggest semipermanent consequence I spot for Rexford is nan geographic concentration, I deliberation nan business will proceed to thrive arsenic 1 of nan champion operators successful a marketplace pinch agelong word tailwinds. Rexford’s value has go evident to nan marketplace successful caller years, but nan point that gives investors region astir Rexford is their premium valuation.

Valuation

Rexford has commanded a precocious aggregate for years and shares presently waste and acquisition astatine a price/FFO of 30.9x. If you look below, nan stock value has only touched nan mean aggregate bluish statement (a price/FFO of 28.7x) a mates times successful nan past 5 years. When you look astatine nan accordant double-digit rates of growth, and nan awesome guardant maturation estimates, I’m not amazed that Rexford is consistently expensive. I conscionable americium not judge if location is simply a immense separator of information astatine nan existent price. With that said, I still thin bullish moreover if investors person to salary up a spot for Rexford’s awesome existent property portfolio and accelerated growth.

Rexford Valuation

Price/FFO (fastgraphs.com)

I wouldn’t beryllium counting connected aggregate description , but Rexford has spent astir of nan past 5 years supra its mean multiple, truthful it could beryllium possible. One point that could play retired successful coming years is that Rexford could outpace its projected maturation from caller acquisitions and rent maturation from existing properties. If that happens, buying shares coming will astir apt look for illustration a steal. One of nan different things that Rexford has delivered on pinch their awesome maturation successful FFO/share is dividend growth.

Accelerating Dividend Growth

Rexford doesn’t person a immense guardant dividend output astatine 2.5%, but that is nan lawsuit for astir of nan business REIT sector. However, investors tin expect continued dividend maturation and if you look astatine nan past mates hikes, nan dividend maturation has really accelerated. The dividend hikes were fundamentally successful nan vicinity of 10% for years, which is thing to sneeze at, but that changed pinch past year’s dividend hike. They hiked nan quarterly payout complete 30% past year, from $0.24 to $0.315. This year’s hike was different 20%, to $0.38. I’m funny to spot if these ample dividend hikes continue, but I americium expecting 10% hikes moving guardant arsenic a blimpish estimate.

Conclusion

Industrial REITs struggled successful 2022, and Rexford is nary exception. Shares are down 25% from their highest supra $80 per stock but shares still look costly today. There is nary uncertainty that Rexford has a awesome existent property portfolio, a beardown equilibrium sheet, but nan price/FFO of 30.9x doesn’t shriek separator of information successful my opinion. They are expected to proceed to turn quickly complete nan adjacent mates years, and I decidedly scheme to support Rexford connected my watchlist.

When you look astatine nan Southern California existent property marketplace that Rexford calls home, location are a batch of tailwinds, including favorable proviso and request and debased vacancies. Over nan adjacent 5 years, astir of Rexford’s leases expire, which I deliberation could lead to awesome growth. While nan output of 2.5% isn’t overmuch successful nan measurement of existent income, I deliberation investors pinch a 3 to 5 twelvemonth clip sky should see an finance successful Rexford. The dividend maturation has really accelerated successful nan past mates years, and I deliberation nan dividend will proceed to turn astatine double digit rates. Rexford banal is staying connected my watchlist for now and I scheme to bargain immoderate important drops, but I’m still leaning bullish pinch shares adjacent $60.

This article was written by

BeanKounter Capital floor plan picture

CPA and erstwhile Big 4 auditor. I break down investments successful qualitative and quantitative terms, and I look for investments that will compound my money complete nan agelong term.

Disclosure: I/we person a beneficial agelong position successful nan shares of TRNO either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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