Rexford Industrial Realty Inc is a US$2.59b mid-cap, real estate investment trust (REIT) based in Los Angeles, United States. REITs are basically a portfolio of income-producing real estate investments, which are owned and operated by management of that trust company. They have to meet certain requirements in order to become a REIT, meaning they should be analyzed a different way. Below, I’ll look at a few important metrics to keep in mind as part of your research on REXR.See our latest analysis for Rexford Industrial Realty
REIT investors should be familiar with the term Fund from Operations (FFO) – a REIT’s main source of cash flow from its day-to-day business activities. FFO is a higher quality measure of earnings because it takes out the impact of non-recurring sales and non-cash items such as depreciation. These items can distort the bottom line and not necessarily reflective of REXR’s daily operations. For REXR, its FFO of US$76.65m makes up 64.46% of its gross profit, which means the majority of its earnings are high-quality and recurring.
REXR’s financial stability can be gauged by seeing how much its FFO generated each year can cover its total amount of debt. The higher the coverage, the less risky REXR is, broadly speaking, to have debt on its books. The metric I’ll be using, FFO-to-debt, also estimates the time it will take for the company to repay its debt with its FFO. With a ratio of 11.45%, the credit rating agency Standard & Poor would consider this as aggressive risk. This would take REXR 8.73 years to pay off using just operating income, which is a long time, and risk increases with time. But realistically, companies have many levers to pull in order to pay back their debt, beyond operating income alone.
I also look at REXR’s interest coverage ratio, which demonstrates how many times its earnings can cover its yearly interest expense. This is similar to the concept above, but looks at the upcoming obligations. The ratio is typically calculated using EBIT, but for a REIT stock, it’s better to use FFO divided by net interest. With an interest coverage ratio of 3.79x, it’s safe to say REXR is generating an appropriate amount of cash from its borrowings.
I also use FFO to look at REXR’s valuation relative to other REITs in United States by using the price-to-FFO metric. This is conceptually the same as the price-to-earnings (PE) ratio, but as previously mentioned, FFO is more suitable. In REXR’s case its P/FFO is 33.83x, compared to the long-term industry average of 16.5x, meaning that it is overvalued.
As a REIT, Rexford Industrial Realty offers some unique characteristics which could help diversify your portfolio. However, before you decide on whether or not to invest in REXR, I highly recommend taking a look at other aspects of the stock to consider:
- Future Outlook: What are well-informed industry analysts predicting for REXR’s future growth? Take a look at our free research report of analyst consensus for REXR’s outlook.
- Valuation: What is REXR worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether REXR is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.