Executive Summary / Key Takeaways

• Unrivaled Infill Southern California Focus: Rexford Industrial Realty (REXR) maintains a highly differentiated strategy centered on high-barrier, supply-constrained industrial markets in Southern California, leveraging its vertically integrated platform to generate superior risk-adjusted returns.
• Robust Value Creation Engine: The company's core strength lies in its value-add repositioning and redevelopment (R&R) strategy, consistently delivering double-digit incremental returns and substantial embedded NOI growth, even amidst market choppiness.
• Financial Resilience and Strategic Capital Allocation: REXR demonstrates strong financial health with low leverage, ample liquidity, and a disciplined approach to capital recycling and cost control, positioning it to capitalize on opportunities and weather market uncertainties.
• Outperforming in a Challenging Environment: Despite broader market rent declines and tariff-induced tenant decision delays, REXR's high-quality portfolio and operational excellence continue to outperform, evidenced by strong leasing spreads and positive net absorption.
• Significant Embedded Growth: The portfolio holds substantial incremental cash NOI potential from contractual rent steps, R&R projects, and mark-to-market opportunities, providing a clear pathway for future shareholder value creation.

The Infill Imperative: Rexford's Strategic Foundation

Rexford Industrial Realty, established in 2013, has meticulously carved out a unique and defensible niche within the industrial real estate sector. The company operates as a self-administered and self-managed REIT, singularly focused on owning and operating industrial properties within the infill markets of Southern California. This region, characterized by its immense population base of over 24 million and status as the world's 11th largest economy, presents a compelling investment landscape driven by consumption and persistent supply constraints.

The Southern California infill market is a high-barrier environment, marked by a scarcity of functional industrial product and limited new construction. High land costs, stringent regulatory hurdles, and a net reduction in industrial supply due to conversion to other uses create a perpetual supply-demand imbalance. This unique dynamic forms the bedrock of Rexford's investment thesis, allowing it to pursue a strategy of acquiring, improving, repositioning, and redeveloping industrial real estate.

Technological Edge and Operational Platform

Rexford's competitive advantage is deeply rooted in its "technological" or operational platform: a vertically integrated operating model coupled with extensive value-add investment and management capabilities. This proprietary approach allows the company to identify and execute complex value-creation opportunities that passive or less specialized owners might overlook. The platform's benefits are tangible and quantifiable.

For instance, repositioning and redevelopment projects consistently achieve double-digit incremental returns, with recent stabilized projects in Q2 2025 delivering a 7.4% unlevered stabilized yield on total investment and incremental returns around 19%. This contrasts sharply with typical market acquisition yields. The company's operational prowess also translates to superior market performance; in 2024, Rexford's average executed lease rate was 19% higher than the overall infill markets. This is attributed to its ability to deliver higher quality and more functional spaces, outcompeting less focused real estate owners.

Rexford's focus on smaller format spaces (under 50,000 square feet, with an average tenant size of 26,000 square feet) further highlights its operational technology. These spaces exhibit greater resilience in market rents due to limited comparable supply, a direct benefit of Rexford's specialized acquisition and enhancement capabilities. The strategic intent behind ongoing R&D, interpreted as continuous improvement in asset management and redevelopment methodologies, is to enhance property functionality, eliminate obsolescence, and modernize facilities, thereby increasing cash flow and value.

Competitive Landscape and Market Outperformance

Rexford operates in a competitive arena alongside industrial REIT giants like Prologis (PLD), EastGroup Properties (EGP), and First Industrial Realty Trust (FR). While Prologis boasts global scale and a larger market share, Rexford differentiates itself through its hyper-focused, infill Southern California strategy. Rexford's lower debt-to-equity ratio (0.39 TTM) compared to Prologis's 0.58, coupled with a slightly higher estimated Return on Invested Capital (ROIC) of 8-10% versus Prologis's 7%, indicates superior capital efficiency within its niche. This regional focus, while limiting broad scalability, provides stronger tenant stability and potentially better rent growth (5-10% higher than broader market averages).

Compared to EastGroup Properties, which also targets Sunbelt markets including Southern California, Rexford's larger and more diversified portfolio (49.5 million square feet) offers greater operational efficiency in redevelopment. Rexford's ability to generate an 11.9% unlevered IRR on dispositions, which are then recycled into higher-yielding R&R projects, underscores a more active value-creation model than EastGroup Properties' development-focused approach. Against First Industrial Realty Trust, Rexford's scale and proprietary management capabilities enable faster asset redevelopment and potentially lower operating costs per unit, reinforcing its competitive moat.

Despite recent market headwinds, Rexford's portfolio continues to exhibit relative strength. In Q2 2025, market rents across Rexford's portfolio declined 3.5% sequentially and 12.8% year-over-year, which, while a decline, compares favorably to the broader infill markets and significantly better than the larger box markets. The company's ability to achieve positive net absorption of 220,000 square feet in Q2 2025, outperforming the overall market's negative absorption, further highlights its competitive edge.

Financial Performance and Operational Resilience

Rexford's financial performance reflects its strategic execution. For the six months ended June 30, 2025, total revenues increased 11.1% to $501.8 million, driven by a 10.5% increase in rental income to $490.4 million. Net income attributable to common stockholders surged 29.4% to $187.5 million for the same period.

The company's TTM Gross Profit Margin stands at 77.55%, Operating Profit Margin at 38.89%, and Net Profit Margin at 32.12%, demonstrating robust profitability.

Operational metrics underscore this strength. Same-property occupancy stood at 96.1% at Q2 2025, increasing 40 basis points sequentially. Leasing spreads for comparable leases in Q2 2025 were 21% net effective and 8% cash, with embedded rent steps averaging 3.7%. The company's bad debt was de minimis at only 6 basis points of revenue in Q2 2025, reflecting strong tenant health and rigorous credit analysis. Furthermore, Rexford's commitment to efficiency is evident in its ability to keep General & Administrative expenses flat in 2024, despite a 17% growth in consolidated Net Operating Income (NOI).

Strategic Initiatives and Capital Allocation

Rexford's capital allocation strategy prioritizes maximizing returns and accretion. The company actively recycles capital through strategic dispositions, selling properties at attractive cap rates to fund higher-yielding repositioning and redevelopment projects. Year-to-date in 2025, dispositions totaled $134 million at a weighted average cap rate in the low 4% range, achieving an unlevered IRR of 11.9%. These proceeds are strategically redeployed into R&R projects, which offer incremental returns around 19-20%.

The company's R&R pipeline remains a significant growth driver. As of June 30, 2025, 14 properties were under current repositioning/redevelopment, with an additional 18 in lease-up. Year-to-date, 7 R&R projects have been stabilized, contributing over $16 million in annualized NOI from over 900,000 square feet leased. A notable future project is the Hertz asset near LAX, an irreplaceable location where Rexford plans to deliver a 400,000 square foot building, a "one of one" in the market, upon lease expiration in Q1 2026.

Rexford maintains a robust balance sheet to support its growth initiatives. As of June 30, 2025, it held $560 million in cash and cash equivalents and had $1.25 billion available under its unsecured revolving credit facility. Its net debt to EBITDA stood at a healthy 4.0x. The company proactively manages its debt profile, as evidenced by the May 2025 amendment to its credit facility, which increased borrowing capacity, extended maturities, and lowered interest rates. This strategic financial management provides the flexibility to fund an estimated $152.4 million in capital expenditures for R&R projects over the next few years and potentially pursue accretive acquisitions, albeit with increased hurdle rates.

Outlook and Risks

Rexford Industrial has reaffirmed its full-year 2025 Core FFO outlook at $2.37 to $2.41 per share. This guidance assumes lower interest expense due to favorable rates on its term loan and higher capitalized interest, which are expected to offset some delays in rent commencements. The company anticipates same-property occupancy to be between 95.5% and 96% in the second half of 2025, reflecting planned move-outs. Projected lease-up timing for R&R projects has been extended to nine months on average, acknowledging current market dynamics and tariff-related uncertainties.

The company's 2025 leasing spread assumptions are revised to approximately 25% net effective and 15% cash, a change not expected to materially impact guidance given that only 11% of Annualized Base Rent (ABR) expires through year-end. A net NOI contribution of $15 million is projected from R&R projects for 2025.

Despite the positive outlook, Rexford faces several risks. Macroeconomic and political uncertainty, including tariff policies, continue to weigh on tenant decision-making, potentially influencing demand and lease-up times. While Rexford's consumption-driven tenant base is relatively insulated from trade flow changes compared to larger box markets, a significant reduction in overall consumer demand remains a concern. Construction costs and potential delays also pose risks to R&R project budgets and timelines. Geographic concentration in Southern California exposes the company to regional economic shifts, though this is mitigated by the market's inherent supply-demand imbalance. Bad debt assumptions for 2025 are set at a conservative 75 basis points, double historical averages, reflecting a cautious stance.

Conclusion

Rexford Industrial Realty stands as a compelling investment opportunity, fortified by its strategic focus on the irreplaceable infill Southern California industrial market. The company's vertically integrated operational platform acts as its core technological differentiator, enabling superior value creation through meticulous repositioning and redevelopment, which consistently yields attractive incremental returns. This operational excellence allows Rexford to outperform its peers in key metrics like rent growth and capital efficiency, even amidst a challenging macroeconomic backdrop.

With a robust balance sheet, disciplined capital allocation, and a significant pipeline of embedded NOI growth from contractual rent steps and R&R projects, Rexford is well-positioned to deliver substantial shareholder value. While near-term market choppiness and tariff uncertainties may influence tenant decision-making and lease-up timelines, the company's foundational strengths, coupled with its proactive risk management and commitment to operational efficiency, underscore a resilient investment thesis. Rexford's ability to transform legacy assets into high-quality, functional spaces ensures its long-term competitive advantage and continued growth in one of the world's most dynamic industrial markets.