Shares of Rexford Industrial Realty (REXR 0.13%) bought an enormous enhance from traders popping out of the pandemic. It was, at that time, a narrative inventory due to elevated demand for warehouses on the time.
Wall Avenue has moved on to new tales, like synthetic intelligence (AI), and Rexford’s inventory value has misplaced round half its worth since its excessive level in 2022. The dividend yield is now a sexy 4.1%.
This is why this inventory must be seen as a purchase and maintain for long-term earnings traders.
What does Rexford Industrial do?
Rexford is a actual property funding belief (REIT), which implies it buys properties and leases them out to tenants. It is a pretty easy enterprise to grasp. Nonetheless, the corporate is very targeted. For starters, it solely buys industrial belongings. That is not odd, as many REITs have a property kind they emphasize.
Nonetheless, Rexford solely buys industrial properties positioned in Southern California. That is fairly distinctive, with most of its industrial friends preferring to have extra geographically various portfolios.
Picture supply: Getty Photographs.
In some methods this can be a high-risk enterprise mannequin. Rexford can be in large bother if something ought to go fallacious with industrial belongings in Southern California. However that needs to be juxtaposed towards another info.
For instance, Southern California is the biggest industrial market in the US, due to the truth that it’s a gateway into the nation for Asian items. Emptiness charges within the area, whereas rising since 2023, are decrease in Southern California than the common emptiness of business belongings within the broader U.S. market.
There are causes to count on Southern California to stay advantaged as effectively. Notably, provide is tight due to a restricted provide of land and the truth that industrial belongings are ceaselessly transformed to different functions, significantly housing. Additionally, redevelopment of belongings, one thing Rexford is adept at doing, would not enhance provide, it simply makes current provide extra engaging to potential tenants.
Southern California is a sexy market and there is not any purpose to imagine that is going to vary. In the event you needed to choose a regional focus within the industrial sector, it could be a good selection.
How is Rexford doing as we speak?
As famous, the story for industrial properties was heightened demand popping out of the height of the COVID-19 pandemic. That led to massive hire will increase. With demand cooling off considerably, highlighted by the broad lower in occupancy in Southern California since 2023, maybe the sell-off in Rexford’s inventory is due to issues that the enterprise is going through. Probably not.
In mid-November 2024, Rexford put out a press launch offering an replace on some key statistics. For starters, occupancy stood at 95.9%, which is a fairly robust quantity. Certain, that is decrease than it was throughout the peak of demand, however it’s hardly at worrying ranges.
Second, the corporate’s common rental enhance on leases that have been renewed or newly signed in roughly the primary half of the fourth quarter have been at charges that have been 80% increased than the expiring lease they changed. They usually included annual hire bumps of three.9%, which is a fairly robust determine and can help future earnings for years to come back.
Maybe the Southern California industrial market is not as robust because it was, however it’s nonetheless robust.
REXR Dividend knowledge by YCharts
On high of that, the corporate estimates that it has round $450 million in capital spending initiatives because it continues to redevelop current belongings. That, in flip, will enable for extra rental will increase sooner or later. In reality, the backlog of labor is projected to final by way of 2027, so redevelopment is a one more multiyear tailwind.
Why purchase Rexford Industrial Right now?
All in, it seems Rexford stays a well-positioned industrial REIT. However the actual attraction right here is the 4.1% dividend yield, which is close to the very best ranges within the firm’s historical past. In different phrases, it looks like this well-positioned REIT has been positioned on the sale rack due to the market’s broader considerations about industrial actual property.
Given Rexford’s give attention to an advantaged market and nonetheless robust efficiency, it looks like it may very well be a worthwhile purchase for dividend traders who assume in many years and never days.
