REXR: A Case for Undervaluation Amid Industrial Real Estate Tailwinds

The recent 12.4% plunge in Rexford Industrial Realty's (REXR) share price in April 2025 has sparked debate about whether the stock is being unfairly punished by macroeconomic headwinds or if it represents a buying opportunity for long-term investors. With the industrial real estate sector navigating a shift in tenant-landlord dynamics and softening rents, REXR's strategic focus on infill Southern California properties and its robust balance sheet position it as a compelling case study in undervaluation.

Valuation Metrics: A Tale of Two Narratives

REXR's valuation ratios paint a mixed picture. As of October 2025, the stock trades at a P/FFO of 13.99 and a P/AFFO of 15.04, metrics that align with or slightly exceed the industrial REIT industry averages of 25.94x PE and 20.14x EV/EBITDA, according to StockAnalysis ratios. However, a Discounted Cash Flow (DCF) analysis estimates an intrinsic value of $53.30, implying a 21.8% undervaluation relative to its current price of $41.67, based on a Simply Wall St analysis. This discrepancy suggests that while REXR's fundamentals remain intact, the market may be overcorrecting for near-term cyclical risks.

The company's Debt/EBITDA ratio of 5.12 and Debt/Equity of 0.37 indicate a conservative capital structure, supported by $504.6 million in cash and equivalents and $995 million in revolver availability, as stated in the first-quarter press release. These liquidity buffers provide flexibility to navigate a potential downturn, a critical advantage in a sector where cap rates and rent growth are under pressure.

Market Dynamics: Southern California's Resilient Niche

The broader industrial real estate market is grappling with tenant-favorable conditions, including rising vacancy rates (7.4% nationally as of Q2 2025) and slowing rent growth (1.7% YoY) . In Southern California, where REXR operates, the Inland Empire submarket has seen vacancy rates climb to 4.8%, while asking rents have softened for seven consecutive quarters, per StockAnalysis. However, REXR's focus on smaller properties (under 50,000 sq ft) has insulated it from the worst of these trends. These assets cater to last-mile logistics and e-commerce demand, sectors with structural tailwinds that offset cyclical headwinds.

REXR's Q1 2025 results underscore this resilience: Core FFO rose 14.1% YoY, and NOI increased 18.4%, driven by a 23.8% GAAP net effective rent spread on new leases, according to the company press release. Such performance highlights the company's ability to leverage embedded rent escalations and repositioning projects to drive growth, even in a challenging environment.

Risks and Rewards: A Balancing Act

Critics argue that REXR's exposure to Southern California's supply-constrained market is a double-edged sword. Excess inventory for large properties (over 100,000 sq ft) and sublease availability (36 million sq ft in Southern California) pose risks to long-term rent growth, per StockAnalysis. Additionally, the company's forward PE of 31.08 exceeds the sector average, raising questions about whether its premium is justified (StockAnalysis data).

Yet, REXR's 4.15% dividend yield and its status as a "pure-play" industrial REIT in a key logistics hub offer compelling value for income-focused investors. The market's current price target of $34–$40, as noted by Simply Wall St, appears to understate the company's long-term potential, particularly as e-commerce demand and urban infill scarcity drive asset appreciation.

Conclusion: A Dislocation to Exploit

REXR's recent share price decline reflects a market grappling with macroeconomic uncertainty and sector-wide softness. However, its strong operational performance, conservative leverage, and strategic alignment with structural demand drivers suggest the selloff has overcorrected. For investors with a 3–5 year horizon, REXR's current valuation offers an attractive entry point to capitalize on Southern California's enduring logistics premium and the eventual normalization of industrial real estate fundamentals.