Rexford Industrial Realty (NYSE:REXR) reported third-quarter execution marked by higher leasing activity, improved occupancy, a major portfolio sale and an increase to its full-year Core FFO guidance.
Chief Executive Officer Laura Clark said the company completed more than 3.7 million square feet of leasing during the quarter, its second-highest quarterly total. Same-property net operating income, or NOI, occupancy rose 200 basis points sequentially as approximately 87% of expiring space was renewed or backfilled, according to Chief Operating Officer John Nahas.
Management said Southern California industrial-market conditions showed early signs of improvement. The market recorded a second consecutive quarter of positive net absorption, while market rents posted marginal quarterly growth—the first quarterly increase since 2023, Clark said. She cautioned that recoveries are “rarely linear,” but said the market’s direction was encouraging.
Leasing activity and market demand
Rexford’s leasing activity included approximately 600,000 square feet across repositioning and development projects. Nahas said those leases are expected to generate more than $14 million of annualized NOI once they commence.
Demand during the quarter was led by light manufacturing and advanced manufacturing, which accounted for about one-third of leasing activity, Nahas said. Logistics, distribution and warehouse users comprised another third, while the remainder came from sectors including construction and building materials, apparel, food and beverage, healthcare, and entertainment.
Management identified growing demand for Class A industrial properties as a notable trend. Nahas said advanced manufacturing and logistics users were the largest occupiers of Class A space, with advanced manufacturing demand remaining especially strong in the South Bay. The company also observed demand for functional Class B properties in several markets.
- Orange County returned to positive net absorption, supported by Class A demand and activity from corporate users.
- Mid-Counties and San Gabriel Valley saw functional Class B space lease well, with Class A demand gaining traction.
- South Bay activity was supported by logistics, advanced manufacturing and aerospace tenants seeking higher-quality space and infrastructure.
- IE West leasing was led by logistics, particularly for buildings between 100,000 and 250,000 square feet.
- San Fernando Valley demand remained healthy for functional Class B properties under 100,000 square feet, while Class A demand was more limited.
Management said the company’s vertically integrated operating platform has helped it move negotiations more quickly as tenants become more decisive. Clark added that fourth-quarter tenant activity had remained similar to the sustained level seen in the third quarter, including activity for repositioning and development properties still in lease-up.
Portfolio realignment and dispositions
The company advanced its $2 billion portfolio realignment initiative with a $1.2 billion sale of a 5.2 million-square-foot portfolio comprising 22 properties. Clark described it as Rexford’s largest transaction to date. Including the transaction, the company has completed $1.5 billion of dispositions year to date.
Nahas said the sold portfolio contained properties with greater exposure to competitive supply and more limited growth potential. At closing, the assets had a weighted-average remaining lease term of 2.7 years, in-place rents nearly 30% above market and an estimated 2027 cash NOI yield of approximately 5.5%.
Rexford also completed three additional dispositions during the quarter, all to owner-users, Nahas said. The company expects to dispose of a remaining $500 million of assets under the realignment initiative, with most of those transactions expected to be under contract or completed by year-end.
Clark said buyer interest has remained constructive despite higher Treasury rates, though higher rates have increased capital costs for some buyers and made the transaction market more selective. She said the company expects pricing on the remaining assets, in aggregate, to be roughly in line with the 5.5% estimated 2027 cash NOI yield achieved in the $1.2 billion portfolio sale.
Debt reduction, buybacks and guidance
Chief Financial Officer Michael Fitzmaurice said Rexford used disposition proceeds to reduce debt and repurchase shares. Leverage declined by three-quarters of a turn to 3.8 times, and the company had repaid $425 million of its $1 billion of debt maturities scheduled for 2027.
The company expects to repay the remaining $575 million at maturity in March rather than refinance at what Fitzmaurice characterized as current rates of roughly 6.25%. Following that maturity, Rexford’s next meaningful debt maturity is in June 2028, he said.
Rexford repurchased $709 million of stock year to date, including $409 million during and after the third quarter. Since the second quarter of the prior year, the company has bought back nearly $1 billion of shares, or about 10% of shares outstanding, Fitzmaurice said. Rexford ended the quarter with $1.7 billion of liquidity and expects net debt to EBITDA of approximately 3.5 times by year-end.
Third-quarter Core FFO was $0.60 per share, unchanged from the prior-year quarter. Favorable capital-recycling activity and lower general and administrative expense were offset by lower same-property NOI and lower interest income. Core FFO per share declined $0.03 sequentially, primarily due to timing associated with redeploying disposition proceeds, partly offset by lower interest expense and share-repurchase accretion.
The company raised the midpoint of its full-year Core FFO-per-share guidance by $0.02, setting a range of $2.41 to $2.44. Fitzmaurice said the increase reflected better-than-expected leasing and lower anticipated bad debt. Rexford also raised the midpoint of its same-property NOI growth outlook by 75 basis points on both a net-effective and cash basis, while increasing its average same-property occupancy outlook by 40 basis points at the midpoint to 95.9%.
Outlook for occupancy and rent spreads
Looking ahead, Fitzmaurice said Rexford expects cash leasing spreads to average in the negative low- to mid-teens over the next several years as leases signed during the 2022 and 2023 market peak expire. He said this outlook assumes flat market rents through the next couple of years, leaving potential upside if rents accelerate.
Management said selling non-core assets improved the expected leasing-spread outlook by about 200 basis points and reduced future NOI pressure. Fitzmaurice also said the company could stabilize same-property occupancy in a 97% to 98% range over the next several years if market conditions remain supportive. Total portfolio occupancy was about 91% at quarter-end, with management estimating potential stabilization at 94% to 95%.
Clark said acquisitions remain part of Rexford’s long-term strategy but must compete with other uses of capital. At present, she said debt reduction, share repurchases when market pricing diverges from the company’s view of intrinsic value, and internal repositioning and development projects represent more compelling uses of capital.
About Rexford Industrial Realty (NYSE:REXR)
Rexford Industrial Realty, Inc (NYSE: REXR) is a publicly traded real estate investment trust focused on owning, operating and acquiring industrial properties. Its portfolio primarily consists of infill logistics, warehouse, distribution and manufacturing facilities that support supply-chain and business operations.
The company concentrates exclusively on Southern California, including the Los Angeles, Orange County, San Diego and Inland Empire industrial markets. Rexford seeks to benefit from the region’s established transportation infrastructure, large consumer base and constrained supply of well-located industrial real estate.
Rexford Industrial Realty became a publicly traded company in 2013.
