Real estate investment trusts (REITs) come in all shapes and sizes. Some own widely diversified portfolios while others concentrate on a specific property type or a particular region.
Rexford Industrial Realty (NYSE: REXR) is in that latter group. However, it takes focus to another level by concentrating on one property type in one region. Here's a closer look at why it believes that strategy is the best one to create value for its investors.
Rexford Industrial Realty profile
Rexford Industrial Realty is an industrial REIT that owns and manages industrial properties like distribution, warehouse, and manufacturing facilities solely in the Southern California market. As of the end of 2021's first quarter, the company owned 259 properties with about 32.2 million square feet of rentable space. On top of that, it managed 20 other properties with roughly 1 million rentable square feet for third parties.
Its properties include:
- Warehouse distribution: 62% of its annual base rent (ABR)
- Warehouse/light manufacturing: 18%
- Light industrial/office: 9%
- Warehouse/excess land: 4%
- Industrial outdoor storage: 1%
- Other (light manufacturing/flex and cold storage/distribution): 6%
Rexford's heavy warehouse concentration puts it in a strong position to benefit from the accelerated adoption of e-commerce and shifting inventory management practices. Those dual catalysts should drive healthy demand growth for industrial space for the next several years.
Meanwhile, Rexford concentrates on Southern California because of its unique features. Namely, it's:
- Big: It's the largest industrial market in the U.S. and the fourth-biggest worldwide.
- Valuable: Rental rates are 80% higher than the average of the next five biggest U.S. markets.
- Diverse: The local economy supports 23 million residents and 570,00 businesses.
- Vital: The region has the largest ports in the country, linking it to the Pacific Rim. They represent 40% of all containerized imports, with 40% to 50% of those imports distributed locally.
The Southern California market has limited new supply potential due to natural and physical barriers, scarce developable land, high development costs, and entitlement restrictions. Because of all those characteristics, the Southern California industrial market benefits from above-average rent growth.
Rexford leases space in its industrial properties to various tenants, led by:
- FedEx: 2.5% of its ABR
- Unified Natural Foods: 1.7%
- Michael Kors: 1.6%
- Cosmetic Laboratories of America: 1.6%
- Global Mail: 0.8%
- Omega/Cinema Props: 0.8%
- 32 Cold: 0.7%
- Dendreon Pharmaceuticals: 0.7%
- Command Logistics Services: 0.7%
- Lumber Liquidators Services: 0.6%
Overall, its top 10 tenants contribute 10.9% of its ABR while the 20 largest supply 16.8%. Meanwhile, 25% of its tenants are involved in wholesale trade, 25% are in transportation and warehousing, 18% are light manufacturing, 7% are in retail trade, and 25% are in various other industries. Those factors suggest Rexford has a highly diversified tenant base.
Rexford Industrial Realty news
Rexford delivered strong results in 2020 despite the challenges of the pandemic. The REIT's same-property net operating income (NOI) rose 4.5% year over year for stabilized properties, thanks partly to a 20% increase in cash rental rates for new leases on existing space. That helped drive a 22.1% overall increase in its FFO -- and 7.3% on a per-share basis -- for the year.
Another big growth driver for Rexford in 2020 was new investments. The company acquired 38 properties with 5 million square feet for $1.2 billion. Seven of those acquisitions included low-coverage outdoor storage and land for redevelopment, giving it space for future expansion. The REIT also sold four properties for $45.5 million.
The company continued its strong showing in early 2021. It grew its same-property cash NOI by 8.2% in the period, driven partly by a 32.7% jump in cash rents on renewal leases. That helped power a 28.9% increase in FFO -- 12.1% on a per-share basis -- in the quarter.
Rexford also continued expanding its portfolio in early 2021. It purchased 11 properties with nearly 750,000 square feet of rentable space for $163.5 million while selling two for $20.8 million. It bought several more early in the second quarter, including some redevelopment sites, bringing its year-to-date total to $232 million by early June. Meanwhile, it had about $525 million of additional deals in the pipeline. Rexford also had more than $400 million of current and future repositioning and redevelopment projects underway or in the pipeline.
Rexford Industrial Realty stock price
Rexford's strategy of focusing on the Southern California industrial market has paid off for investors in recent years: