Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Rexford Industrial Realty, Inc. is a US$3.2b 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. I’ll take you through some of the key metrics you should use in order to properly assess REXR.
Funds from Operations (FFO) is a higher quality measure of REXR’s earnings compared to net income. This term is very common in the REIT investing world as it provides a cleaner look at its cash flow from daily operations by excluding impact of one-off activities or non-cash items such as depreciation. For REXR, its FFO of US$77m makes up 64% of its gross profit, which means the majority of its earnings are high-quality and recurring.
In order to understand whether REXR has a healthy balance sheet, we have to look at a metric called FFO-to-total debt. This tells us how long it will take REXR to pay off its debt using its income from its main business activities, and gives us an insight into REXR’s ability to service its borrowings. With a ratio of 11%, 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 41.83x, compared to the long-term industry average of 16.5x, meaning that it is highly overvalued.
Rexford Industrial Realty can bring diversification into your portfolio due to its unique REIT characteristics. Before you make a decision on the stock today, keep in mind I’ve only covered one metric in this article, the FFO, which is by no means comprehensive. I’d strongly recommend continuing your research on the following areas I believe are key fundamentals for REXR:
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.