Rexford Industrial Realty, Inc. is a self-administered and self-managed real estate investment trust (REIT) focused on owning and operating industrial properties in Southern California’s infill markets. The company has demonstrated remarkable growth and resilience, leveraging its strategic location and operational expertise to create value for shareholders.
Company Background and Growth
Founded in 2013, Rexford Industrial has rapidly expanded its portfolio, capitalizing on the strong demand for industrial space in the region. The company was formed as a Maryland corporation on January 18, 2013, along with Rexford Industrial Realty, L.P., the Operating Partnership, of which Rexford Industrial Realty, Inc. is the sole general partner. At its inception, the company began operations with a portfolio of 68 industrial properties comprising approximately 5.8 million rentable square feet across Southern California. Over the next several years, Rexford Industrial Realty grew its portfolio through strategic acquisitions, repositioning and redevelopment of existing properties, and selective dispositions. By the end of 2016, the company’s portfolio had expanded to 158 properties comprising approximately 15.9 million rentable square feet.
In 2017, Rexford Industrial Realty faced a challenge when it acquired a portfolio of 31 properties that required significant repositioning and renovations. The company successfully executed its value-add strategy, completing the upgrades and leasing the properties to stabilized occupancy levels over the next two years. This transaction demonstrated Rexford Industrial Realty’s ability to effectively integrate and reposition acquired properties to drive increased cash flow and value. As of 2022, Rexford Industrial Realty’s portfolio had grown to 375 properties comprising approximately 45.2 million rentable square feet across Southern California. The company has established itself as a leading owner and operator of infill industrial properties in its target markets, leveraging its vertically integrated platform and expertise to identify and capitalize on value-creation opportunities.
As of September 30, 2024, the company’s consolidated portfolio consisted of 423 properties with approximately 50.1 million rentable square feet, making it a significant player in the Southern California industrial real estate market.
Business Strategy and Operations
Rexford Industrial’s success is rooted in its ability to identify and acquire underutilized or underperforming properties, then reposition and redevelop them to improve their functionality and cash flow. The company’s vertically integrated platform, which includes in-house leasing, property management, and construction capabilities, allows it to execute these value-add strategies efficiently.
A key component of Rexford Industrial’s growth strategy is acquiring properties with value-add opportunities, either through leased, stabilized properties or properties that can be improved through repositioning and redevelopment. During the first nine months of 2024, the company completed $1.3 billion in total investments, representing 49 properties with 3.2 million rentable square feet.
Financial Performance
The company’s financial performance has been impressive. For the nine months ended September 30, 2024, Rexford Industrial reported net income of $221.02 million, up 21.3% from the same period in the prior year. The company’s funds from operations (FFO) per share grew 9.3% year-over-year during this period, highlighting its ability to generate consistent and growing returns for shareholders.
In the most recent quarter (Q3 2024), Rexford Industrial reported revenue of $241.84 million, net income of $67.77 million, operating cash flow of $127.24 million, and free cash flow of $7.25 million.
The company’s rental income for the nine-month period ended September 30, 2024, increased 16.9% year-over-year to $682.4 million, driven by increases in average rental rates and tenant reimbursements.
Balance Sheet and Liquidity
Rexford Industrial’s balance sheet reflects its financial strength. As of September 30, 2024, the company had $61.84 million in cash and cash equivalents and $995 million in available borrowing capacity under its $1 billion unsecured revolving credit facility, providing ample liquidity to fund future growth initiatives. The company’s net debt to EBITDA ratio of 4.7x is well within its long-term target range of 4.0x to 4.5x, indicating prudent financial management.
As of September 30, 2024, Rexford Industrial had $3.39 billion in total consolidated indebtedness, with 100% of this debt being fixed-rate either through the terms of the loans or the use of interest rate swaps.
Portfolio Performance
Despite the broader economic uncertainty, Rexford Industrial has maintained strong occupancy levels in its portfolio. As of September 30, 2024, the company’s consolidated portfolio occupancy was 93.0%, with its stabilized portfolio occupancy at 97.6%. This underscores the resilience of the company’s tenant base and the essential nature of its infill industrial properties.
During the nine months ended September 30, 2024, the company executed a total of 351 new and renewal leases with a combined 7.1 million rentable square feet, demonstrating strong leasing activity.
Growth Strategy and Future Outlook
Rexford Industrial’s growth strategy revolves around acquiring and repositioning properties in Southern California’s infill markets, where barriers to new supply and strong demand dynamics create attractive investment opportunities. The company’s pipeline of current and future repositioning and redevelopment projects totals 39 properties, representing 2.5 million square feet of estimated rentable space at completion.
The company has 24 properties currently under repositioning and redevelopment initiatives, with an additional 15 projects anticipated to begin construction between Q4 2024 and Q4 2025. Rexford Industrial estimates approximately $439.3 million in capital will be required over the next few years to complete these projects.
Looking ahead, Rexford Industrial has provided guidance for 2024, expecting FFO per share to grow 7% year-over-year to a range of $2.33 to $2.35. The company’s same-property net operating income (NOI) is projected to increase by 4.25% to 4.75% on a net effective basis and 7.0% to 7.5% on a cash basis.
The drivers of Rexford Industrial’s same property NOI growth guidance include: – Expecting 2024 average occupancy of 96.5% to 96.75% – Forecasting full year leasing spreads of 55% on a net effective basis and 40% on a cash basis – Anticipating concessions of approximately 1.75 months – Expecting bad debt as a percentage of revenue to be in the 50 basis point area, in line with year-to-date and historical averages
Rexford Industrial has an estimated $222 million of internal cash NOI growth embedded within their current portfolio over the next three years, representing 34% growth.
Market Performance
Rexford Industrial’s success has not gone unnoticed. The company’s shares have outperformed the broader REIT market, with a total return of 18.2% over the past 12 months (as of September 30, 2024), compared to the FTSE Nareit All Equity REITs Index’s return of 14.5%.
Conclusion
In conclusion, Rexford Industrial Realty, Inc. has established itself as a dominant player in the Southern California industrial real estate market. Its focus on value-add acquisitions, efficient operational platform, and prudent financial management have driven consistent growth and strong returns for shareholders. With a robust pipeline of repositioning and redevelopment projects, the company appears well-positioned to continue its upward trajectory in the years to come. The company’s strong financial performance, strategic growth initiatives, and favorable market conditions in Southern California’s infill markets suggest a positive outlook for Rexford Industrial Realty in the foreseeable future.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.