Redevelopment In Southern California Will Unlock Scarcity Value

Key Takeaways

• Redevelopment of Southern California assets and market scarcity are supporting rent growth, asset appreciation, and stable revenue expansion.
  
• High occupancy, resilient demand, and strong financial flexibility enable steady cash flows and position the company for opportunistic growth.
  
• Downward rent trends, geographic risks, and redevelopment uncertainties threaten revenue growth, while rising costs and competition could compress margins and slow long-term earnings momentum.

Catalysts

Rexford Industrial creates value by investing in, operating and redeveloping industrial properties throughout infill Southern California, the world's fourth largest industrial market and consistently the highest-demand with lowest-supply major market in the nation.

• Rexford's focus on repositioning and redevelopment of infill Southern California assets is unlocking significant embedded growth, with $70 million of incremental NOI in process or lease-up, and ongoing pipeline activity supporting future same-property earnings and NOI expansion.
  
• Persistent land constraints and growing resistance to new industrial development in major Southern California urban centers will continue to drive long-term scarcity value for Rexford's existing, well-located properties, supporting rent growth and asset appreciation, which should positively impact revenue and NAV over time.
  
• Strong tenant retention, early renewal trends, and consistently high occupancy rates (96.1% this quarter), particularly for smaller spaces where demand remains robust, highlight continued structural demand in Rexford's submarkets, supporting stable cash flows and reducing earnings volatility.
  
• Substantial liquidity and a conservative balance sheet position Rexford to capitalize on potential dislocations in the market, enabling opportunistic capital recycling into high-yield repositioning projects or accretive acquisitions, which can drive incremental revenue growth and maintain solid net margins.
  
• Secular shifts toward increased e-commerce penetration and ongoing supply chain optimization continue to fuel demand for last-mile and efficient logistics facilities in Rexford's core markets, underpinning longer-term occupancy strength and rent growth, which flows through to future FFO and NOI.

Rexford Industrial Realty Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rexford Industrial Realty's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 31.1% today to 26.1% in 3 years time.
• Analysts expect earnings to reach $323.6 million (and earnings per share of $1.35) by about July 2028, up from $306.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.5x on those 2028 earnings, up from 28.8x today. This future PE is greater than the current PE for the US Industrial REITs industry at 28.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.86%, as per the Simply Wall St company report.

Rexford Industrial Realty Future Earnings Per Share Growth

Risks

• Market rents across Rexford's portfolio declined 3.5% sequentially and 12.8% year-over-year, and management noted tenants are more cautious and delaying decision-making due to macroeconomic and tariff uncertainty-suggesting sustained downward rent pressure could weigh on revenue growth and lead to slower earnings momentum over the long term.
  
• Planned move-outs and repositioning/redevelopment pipeline will take $13–15 million of NOI offline in 2025 and a potentially higher $30–45 million+ in 2026, but delays in lease-up, longer conversion cycles, and softening market demand introduce risk that new projects may not fully or quickly replace lost cash flows, negatively impacting net operating income and FFO.
  
• The company's heavy concentration in infill Southern California exposes it to geographic risks-such as pockets of oversupply in certain submarkets (like 100,000-200,000 sq ft spaces in the Mid-Counties), and region-specific economic downturns-which could hurt occupancy, weaken rent levels in affected markets, and increase portfolio earnings volatility.
  
• Rexford's growth is increasingly dependent on value-add redevelopment/repositioning returns and disciplined acquisitions, but higher property values, rising cap rates to 5%+, and more competitive deal environments may force Rexford to accept lower incremental yields or overpay for new assets, compressing future returns and margin expansion.
  
• Sustained cost pressures from stricter environmental policies, higher property taxes, and rising construction or maintenance costs in California-combined with ongoing tenant uncertainty and leasing delays-could squeeze net margins and slow long-term earnings growth.

Valuation

• The analysts have a consensus price target of $39.25 for Rexford Industrial Realty based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $44.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $323.6 million, and it would be trading on a PE ratio of 45.5x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $37.37, the analyst price target of $39.25 is 4.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.