BofA Securities has made a significant adjustment to its stance on Rexford Industrial Realty (NYSE: REXR), downgrading the stock from Buy to Neutral and reducing the price target to $49.00 from the previous $66.00.
The change reflects a revised outlook on the company's recovery prospects in its core Los Angeles market.
The downgrade was prompted by a slower-than-expected demand recovery in Rexford's Los Angeles markets. Despite initial signs of stabilization noted at the September Global Real Estate conference, recent results and updates from the company suggest that challenges in the region may persist for longer than previously anticipated.
As a result of these concerns, BofA Securities has revised downward its 2025 estimates for Rexford by 6%. Additionally, the firm has increased the forward applied capitalization rate by 50 basis points to account for the anticipated lower growth, leading to the lowered price objective from $66 to $49. This new target represents a 7.5% discount to the net asset value (NAV).
The report included detailed explanations for the adjustments, with Exhibit 1 and Page 2 cited as references for more information on the changes. BofA Securities indicates that it will continue to monitor for signs of stabilization in demand and market rents before adopting a more positive view of Rexford and the broader sector.
In other recent news, Rexford Industrial Realty reported a 5.4% year-over-year increase in funds from operations (FFO) per share for the third quarter, reaching $0.59. The company also raised its full-year 2023 FFO guidance to $2.33 to $2.35 per share, indicating a 7% year-over-year growth.
This comes alongside a $130 million investment made during and after Q3, with portfolio occupancy maintained at 97.6%. Despite a slowdown in tenant decision-making due to macroeconomic uncertainties and a 7.5% year-over-year drop in market rents, Rexford projects $222 million in internal cash NOI growth over the next three years. In the same vein, Evercore ISI has revised its price target for Rexford Industrial Realty, reducing it to $55.00 from the previous $58.00, while maintaining an Outperform rating.
InvestingPro Insights
While BofA Securities has downgraded Rexford Industrial Realty (NYSE:REXR), recent data from InvestingPro offers additional context to the company's financial position. Despite the challenges in the Los Angeles market, Rexford has demonstrated strong revenue growth, with a 18.01% increase over the last twelve months as of Q3 2024, reaching $903.94 million. This aligns with the InvestingPro Tip that analysts anticipate sales growth in the current year.
The company's dividend performance is also noteworthy. An InvestingPro Tip highlights that Rexford has raised its dividend for 12 consecutive years, with a current dividend yield of 3.63%. This consistent dividend growth, coupled with a 9.87% increase in the last twelve months, may appeal to income-focused investors despite the market challenges noted by BofA.
However, investors should consider that Rexford is trading at a high P/E ratio of 41.6 (adjusted for the last twelve months), which is reflected in another InvestingPro Tip cautioning about the company's high earnings multiple. This valuation metric may support BofA's more cautious stance on the stock.
For readers interested in a deeper analysis, InvestingPro offers 5 additional tips that could provide further insights into Rexford's financial health and market position.
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