Elliott sees opportunities to create value at warehouse REIT Rexford Industrial

Firm: Rexford Industrial Realty (REXR)

Enterprise: Rexford Industrial Realty is a self-administered and self-managed full-service actual property funding belief (REIT). The corporate is concentrated on proudly owning, working and buying industrial properties in Southern California infill markets. It acquires, owns, improves, redevelops, leases and manages industrial actual property principally positioned in Southern California infill markets, via Rexford Industrial Realty, L.P. (Working Partnership) and its subsidiaries. The corporate additionally acquires or gives mortgage debt secured by industrial zoned property or property appropriate for industrial growth. It gives property administration providers and leasing providers to associated occasion property house owners. Its property administration providers embrace performing property inspections, monitoring repairs and upkeep, sustaining tenant relations and offering monetary and accounting oversight. Its portfolio consists of 424 properties with roughly 51.0 million rentable sq. ft.

Inventory Market Worth: $9.47 billion ($40.01 per share)

Activist: Elliott Funding Administration

Possession: n/a

Common Price: n/a

Activist Commentary: Elliott is a multistrategy funding agency that manages about $76.1 billion in property (as of June 30, 2025) and is without doubt one of the oldest corporations of its kind beneath steady administration. Identified for its in depth due diligence and assets, Elliott often follows corporations for years earlier than investing. Elliott is probably the most lively of activist buyers, partaking with corporations throughout industries and a number of geographies.

What’s taking place

On Aug. 27, Elliott introduced that they’ve taken a place in Rexford Industrial Realty.

Behind the scenes

Rexford is an internally managed industrial REIT centered on the Southern California market. The economic REIT area has benefited from robust secular tailwinds, because the rise of e-commerce, which requires extra warehouse area on common than a standard retail enterprise, has pushed up warehousing wants over time. Furthermore, Southern California is a very engaging location resulting from entitlement challenges, land shortage, proximity to ports and its dense city inhabitants, all of which have fueled demand and quick lease development. Traditionally, this prime and irreplaceable portfolio has commanded a high of the market valuation, buying and selling at a 20-30% premium to web asset worth (NAV) and an 8-turn premium to friends on an adjusted funds from operations (AFFO) foundation.

Nevertheless, as we have now seen many instances earlier than with many activists, REITs are inherently poorly ruled and appeal to administration groups with misaligned pursuits. Rexford isn’t any completely different. Regardless of being a California-based firm, they’re domiciled in Maryland, a state that’s notorious for administration pleasant laws, together with the Maryland Unsolicited Takeovers Act, which permits the corporate to categorise its board with out shareholder approval.

A California REIT incorporating in Maryland just isn’t for comfort causes, however extra for entrenchment functions. It’s one of these firm that may even have a seven-person board with a majority (together with two co-CEOs) being members for over 10 years and proudly owning roughly 1% of excellent widespread inventory as a gaggle, nearly all of which was granted to them. As soon as setup like this, the REIT playbook is mostly to tackle debt, problem shares and purchase as a lot property as you’ll be able to as a result of administration’s upside is tied extra to the extent of property managed than inventory worth. Additionally, at cocktail events and golf equipment, it’s “cool” to handle billions of {dollars} of properties. So, since its IPO in 2013, the corporate has elevated its share rely by over 9x, elevated debt from $193 million to $3.5 billion and grew property from $555 million to $12.6 billion. This technique labored for some time when Rexford traded at a big premium to the underlying worth of its actual property, nevertheless it lastly caught as much as them as gross sales, basic and administrative bills bloated, company governance eroded and government compensation turned loaded. (Two CEOs at $13 million every). As its premium to NAV began to say no, so did this technique and Rexford now trades at a 20% low cost to NAV and a 5-6 flip AFFO low cost to friends with its inventory worth all the way down to $40 per share (previous to Elliott’s announcement) from a excessive of greater than $80 in December 2021.

Fortunately for shareholders, the time for change has come, as Elliott Funding Administration has disclosed a high 5 place in Rexford. Whereas this means a minimal of 5% financial publicity (roughly $400 million to 500 million), given Elliott’s funding historical past, their publicity is probably going at the very least $1 billion of their $76 billion of property.

Elliott has a wealthy historical past of driving change at corporations like Rexford, so we anticipate them to advocate for higher company governance, higher capital allocation, and restore the corporate’s strategic deal with creating shareholder worth.

Whereas you will need to be aware that activism may be tougher in Maryland, it has not acted as a prohibition, particularly for skilled and dedicated activists like Elliott. In actual fact, the instruments obtainable to the corporate that may ordinarily discourage activism are on this scenario extra of poison chalice. Any try by administration to entrench themselves within the face of an activist would solely additional harm their repute and assist Elliott’s case that change is warranted. So, we might anticipate Elliott to fare effectively in a proxy struggle right here if it got here to that. However we don’t suppose it would come to that.

When an activist engages with an organization, it typically places that firm in pseudo-play, getting the eye of strategic buyers and personal fairness. This dynamic is even higher for an organization like Rexford that has lengthy been the topic of takeover hypothesis.

For Rexford, their premium property, the consolidation within the REIT trade and their current discounted valuation makes the corporate a pure acquisition candidate. Furthermore, Elliott additionally has a sturdy historical past of catalyzing strategic outcomes at REITs.

At Healthcare Belief of America (previously HTA), Elliott efficiently pushed for a strategic assessment, which finally led to a merger between HTA and Healthcare Realty Belief to kind the most important medical workplace property proprietor within the U.S.

Given Rexford’s present 20% low cost to NAV, we imagine that any takeout would happen at the very least at NAV, however extra seemingly at a premium given the corporate’s historic valuation and portfolio high quality.

If such a chance have been to materialize, as a fiduciary to its buyers and Rexford shareholders, Elliott would weigh the worth from an acquisition in opposition to the long-term standalone plan and advocate for whichever path would ship the most effective worth for shareholders. Contemplating the long-term plan would seemingly require the time and uncertainty of a board and administration reconstitution, we might suppose that an acquisition at an affordable premium can be the popular path right here.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.