Elliott sees opportunities to create value at warehouse REIT Rexford Industrial

Company: Rexford Industrial Realty (REXR)

Business: Rexford Industrial Realty is simply a self-administered and self-managed full-service existent property concern spot (REIT). The institution is focused connected owning, operating and acquiring concern properties successful Southern California infill markets. It acquires, owns, improves, redevelops, leases and manages concern existent property principally located successful Southern California infill markets, done Rexford Industrial Realty, L.P. (Operating Partnership) and its subsidiaries. The institution besides acquires oregon provides owe indebtedness secured by concern zoned spot oregon spot suitable for concern development. It provides spot absorption services and leasing services to related enactment spot owners. Its spot absorption services see performing spot inspections, monitoring repairs and maintenance, maintaining tenant relations and providing fiscal and accounting oversight. Its portfolio consists of 424 properties with astir 51.0 cardinal rentable quadrate feet.

Stock Market Value: $9.47 cardinal ($40.01 per share)

Rexford Industrial Realty shares twelvemonth to date

Activist: Elliott Investment Management

Ownership: n/a

Average Cost: n/a

Activist Commentary: Elliott is simply a multistrategy concern steadfast that manages astir $76.1 cardinal successful assets (as of June 30, 2025) and is 1 of the oldest firms of its benignant nether continuous management. Known for its extended owed diligence and resources, Elliott regularly follows companies for years earlier making an investment. Elliott is the astir progressive of activistic investors, engaging with companies crossed industries and aggregate geographies.

What's happening

On Aug. 27, Elliott announced that they person taken a presumption successful Rexford Industrial Realty.

Behind the scenes

Rexford is an internally managed concern REIT focused connected the Southern California market. The concern REIT abstraction has benefited from beardown secular tailwinds, arsenic the emergence of e-commerce, which requires much warehouse abstraction connected mean than a accepted retail business, has driven up warehousing needs implicit time. Moreover, Southern California is simply a peculiarly charismatic determination owed to entitlement challenges, onshore scarcity, proximity to ports and its dense municipality population, each of which person fueled request and accelerated rent growth. Historically, this premier and irreplaceable portfolio has commanded a apical of the marketplace valuation, trading astatine a 20-30% premium to nett plus worth (NAV) and an 8-turn premium to peers connected an adjusted funds from operations (AFFO) basis.

However, arsenic we person seen galore times earlier with galore activists, REITs are inherently poorly governed and pull absorption teams with misaligned interests. Rexford is nary different. Despite being a California-based company, they are domiciled successful Maryland, a authorities that is infamous for absorption affable regulations, including the Maryland Unsolicited Takeovers Act, which allows the institution to classify its committee without shareholder approval.

A California REIT incorporating successful Maryland is not for convenience reasons, but much for entrenchment purposes. It is this benignant of institution that would besides person a seven-person committee with a bulk (including 2 co-CEOs) being members for implicit 10 years and owning astir 1% of outstanding communal banal arsenic a group, astir each of which was granted to them. Once setup similar this, the REIT playbook is mostly to instrumentality connected debt, contented shares and bargain arsenic overmuch spot arsenic you tin due to the fact that management's upside is tied much to the level of assets managed than banal price. Also, astatine cocktail parties and clubs, it is "cool" to negociate billions of dollars of properties. So, since its IPO successful 2013, the institution has accrued its stock number by implicit 9x, accrued indebtedness from $193 cardinal to $3.5 cardinal and grew assets from $555 cardinal to $12.6 billion. This strategy worked for a portion erstwhile Rexford traded astatine a ample premium to the underlying worth of its existent estate, but it yet caught up to them arsenic sales, wide and administrative expenses bloated, firm governance eroded and enforcement compensation became loaded. (Two CEOs astatine $13 cardinal each). As its premium to NAV started to decline, truthful did this strategy and Rexford present trades astatine a 20% discount to NAV and a 5-6 crook AFFO discount to peers with its banal terms down to $40 per stock (prior to Elliott's announcement) from a precocious of much than $80 successful December 2021.

Luckily for shareholders, the clip for alteration has come, arsenic Elliott Investment Management has disclosed a apical 5 presumption successful Rexford. While this implies a minimum of 5% economical vulnerability (approximately $400 cardinal to 500 million), fixed Elliott's concern history, their vulnerability is apt astatine slightest $1 cardinal of their $76 cardinal of assets.

Elliott has a affluent past of driving alteration astatine companies similar Rexford, truthful we expect them to advocator for amended firm governance, amended superior allocation, and reconstruct the company's strategical absorption connected creating shareholder value.

While it is important to enactment that activism tin beryllium much challenging successful Maryland, it has not acted arsenic a prohibition, particularly for experienced and committed activists similar Elliott. In fact, the tools disposable to the institution that would ordinarily discourage activism are successful this concern much of poison chalice. Any effort by absorption to entrench themselves successful the look of an activistic would lone further harm their estimation and enactment Elliott's lawsuit that alteration is warranted. So, we would expect Elliott to fare good successful a proxy combat present if it came to that. But we bash not deliberation it volition travel to that.

When an activistic engages with a company, it often puts that institution successful pseudo-play, getting the attraction of strategical investors and backstage equity. This dynamic is adjacent greater for a institution similar Rexford that has agelong been the taxable of takeover speculation.

For Rexford, their premium assets, the consolidation successful the REIT manufacture and their contiguous discounted valuation makes the institution a earthy acquisition candidate. Moreover, Elliott besides has a robust past of catalyzing strategical outcomes astatine REITs.

At Healthcare Trust of America (formerly HTA), Elliott successfully pushed for a strategical review, which yet led to a merger betwixt HTA and Healthcare Realty Trust to signifier the largest aesculapian bureau spot proprietor successful the U.S.

Given Rexford's existent 20% discount to NAV, we judge that immoderate takeout would hap astatine slightest astatine NAV, but much apt astatine a premium fixed the company's humanities valuation and portfolio quality.

If specified an accidental were to materialize, arsenic a fiduciary to its investors and Rexford shareholders, Elliott would measurement the worth from an acquisition against the semipermanent standalone program and advocator for whichever way would present the champion worth for shareholders. Considering the semipermanent program would apt necessitate the clip and uncertainty of a committee and absorption reconstitution, we would deliberation that an acquisition astatine a tenable premium would beryllium the preferred way here.

Ken Squire is the laminitis and president of 13D Monitor, an organization probe work connected shareholder activism, and the laminitis and portfolio manager of the 13D Activist Fund, a communal money that invests successful a portfolio of activistic 13D investments.