Rexford Industrial Realty Inc. (REXR) is an industrial REIT with main focus on fulfilling the requirements of Ecommerce companies. The REIT has very focused approach in terms of its clients and geographical locations served. Rexford has shown consistent growth in its operational results as well as in organic growth. In our last assessment of the stock, we had recommended it for investment purpose. Now is the time to revisit and see if our thesis still hold valid in the wake of changed circumstances.
The Portfolio
Rexford has a well diversified portfolio but still maintains the unified core to create a niche for itself in the market. With its generic use properties, the REIT is in position to put them to various uses. It currently has more than two thirds of its portfolio serving warehouse and distribution segment while light manufacturing facilities form a distant second constituent. The REIT also has diversified tenant base, which protects it from ebbs and flows in any one segment.
Rexford mainly operates in the markets with strong fundamentals such as higher industrial growth rate and high entry barriers. Further, supply side in such markets is also severely constrained, allowing the REIT to yield higher margins. In many cases, the supply side is even diminishing as many properties are re-purposed for other uses, leading to the availability of lesser REIT properties in the market. As per a presentation provided by the company, over 100M SF of for-lease infill industrial property has been either removed from infill market or has been re-purposed for other uses since 2001.
Rexford’s main battle ground of Southern California is amongst the most prominent infill logistics markets in the United States. It not only leads in terms of size but also in terms of value. The client base served by Rexford mainly works to provide services for regional consumption, thus protecting the REIT from any upheaval in global markets. While, the REIT focuses on serving e-commerce companies, it is uniquely placed to provide its services for both the first mile and last mile logistics, again diversifying its exposure in the market.
The Strategy
While Rexford has an enviable portfolio, it is important to look at its strategy to carve a niche in a highly competitive market. The REIT derives its USP from its Pure Play business model which implies that the REIT has razor sharp focus on a very specialized field of market. It manages 223 properties spread over 27.4 million square feet in Southern California. This focus allows the REIT to draw substantial competitive advantage over its competitors. Currently, the REIT commands 1.5 percent of total infill SoCal industrial supply and thus has considerable scope to boost its position in the market.
The REIT also benefits from its long history and presence in the market. With its intricate network, Rexford has access to superior research and analytics, allowing it to target properties with high potential and lower valuations. Before entering into any transaction, the REIT carries out proper research concerning major events affecting the market, owner capital structure and extensive transaction analysis. The REIT is currently actively following and monitoring opportunities worth more than $1 billion. Rexford attributes nearly 70 percent of its acquisitions since its 2013 IPO to off market and lightly marketed transactions. Rexford also attains superior results by creating value addition in its properties.
The Financial Numbers
Rexford recently announced its fourth quarter and full year results. The REIT reported its fourth quarter net income attributable to common stockholders at $19.9 million or $0.18 per diluted share. Its net income for the entire year stood at $0.47 per diluted share, up from $0.41 per share it had reported its net income per diluted share at $0.41 for the FY 2018. Rexford reported 34.3 percent increase in its core FFO to $131.1 million for the entire year.
The occupancy rate for its Stabilized Same Property Portfolio was reported at 97.6 as of December 31, 2019 while Same Property Portfolio occupancy, inclusive of assets in value-add repositioning, was reported at 97.4 percent. Its consolidated portfolio showed lease rate of 98 percent and occupancy rate of 97.9 percent. During the year, Rexford acquired 40 industrial properties worth $970.7 million. Out of these, 10 properties were acquired during the fourth quarter, totaling $258.1 million.
Source: Company Website
Apart from its solid operations, the REIT also has equally robust Balance Sheet. Rexford ended the year with $861 million in outstanding debt. Its debt repayment schedule is fairly well staggered and the company is not likely to face any major issues funding the redemption. The REIT had relatively conservative leverage at the end of the year with Debt to Enterprise value ratio of 12.3 percent while its Net Debt to LQA Adjusted EBITDA stood at 3.7x, signifying robust financial position of the REIT.
Investment Thesis
Since dividend payments are considered one of the most prominent USPs of a REIT, it is important to have a look at Rexford’s dividend payment track record. The REIT reported its latest dividend at $0.215 per share, up 16.2 percent. The REIT also has steady track record of dividend payments.
Source: Nasdaq
As far as Rexford stock is concerned, it showed impressive performance. The stock gained over 40 percent in 2019. While due to macro economic factors such as coronavirus outbreak, the stock has taken a beating, it still retains its fundamental strength. Rexford is mainly engaged in serving Ecommerce sector which is all set to prosper, especially so in current times when regular markets have broken down. Further, US retail Ecommerce has shown steady growth, which is expected to accelerate in the coming time periods. The company’s dominance in Southern California market which is amongst the biggest Ecommerce markets is also expected to provide positive fillip to its stock. Overall, the current slump in the stock price may be taken as an opportunity by long term investors to start building a position.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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