Duff & Phelps Trims Rexford Industrial Stake: A Signal of Moderating Growth in Industrial REITs

In the third quarter, Chicago-based Duff & Phelps Investment Management made a notable move by significantly decreasing its stake in Rexford Industrial Realty, a publicly traded industrial REIT. According to a Securities and Exchange Commission filing dated November 13, the firm sold approximately 1.79 million shares of Rexford Industrial Realty (ticker symbol REXR), marking a substantial reduction in its holding within the company. Prior to these transactions, Duff & Phelps Investment Management's shares in Rexford constituted about 1.22% of its assets under management (AUM). Following the share sale, this exposure was sharply lowered to 0.53% as of September 30, reflecting a divestment that contributed a reduction of roughly $57.39 million in the fund's investment in Rexford. Post-sale, the remaining position held by the fund in Rexford consists of approximately 1.13 million shares, which places Rexford outside the fund's top five largest holdings. In comparison, some of the fund’s largest positions as of the filing include Welltower (NYSE: WELL) valued at $446.07 million or 5.08% of AUM, Equinix (NASDAQ: EQIX) at $342.09 million (3.90% of AUM), Prologis (NYSE: PLD) at $340.35 million (3.88% of AUM), Digital Realty (NYSE: DLR) valued at $239.48 million (2.73% of AUM), and Sempra Energy (NYSE: SRE) at $192.85 million (2.20% of AUM). This context illustrates the relatively diminished weighting of Rexford in the fund’s portfolio following the divestiture. Rexford Industrial Realty focuses primarily on owning and operating industrial properties concentrated in high-demand infill markets within Southern California. The company generates its revenue mainly from rental income on a diversified portfolio of industrial facilities, which serves various tenants involved in logistics, distribution, manufacturing, and e-commerce sectors. These tenants value Rexford’s strategic location advantages, including proximity to major transportation corridors and dense population centers. Operational data from the recent quarter affirms Rexford's solid foundational performance. The industrial REIT reported generating $0.60 in core funds from operations (FFO) per diluted share, reflecting a modest year-over-year increase of 1.7%. Correspondingly, the total portfolio net operating income (NOI) exhibited an uptick of 2.9%. Occupancy levels remained robust at 96.8%, suggesting sustained demand and effective property management. Additionally, the company has maintained a strong balance sheet, with a net debt-to-enterprise value ratio near 23%, and no major debt maturities anticipated before 2027. Despite these encouraging operational figures, there are indications that Rexford is entering a phase of maturation. The steady, incremental improvements in fundamental metrics contrast with the rapid growth phases typical of earlier years. This dynamic may be influencing portfolio managers like Duff & Phelps as they recalibrate their exposure to industrial REITs amid an evolving market landscape. Supporting management's confidence in Rexford’s valuation, the company engaged in share repurchases totaling $150 million during the quarter, with an average repurchase price close to $39 per share. This buyback activity signals a belief by Rexford’s leadership that its stock was undervalued at current market levels. Nevertheless, from a broader asset allocation perspective, Rexford's industrial focus may offer less thematic exposure compared to other sectors such as healthcare-focused REITs like Welltower, logistics giants like Prologis, or data center operators such as Equinix. These areas may benefit from secular growth trends related to data consumption, healthcare demand, or global trade expansion, which could influence investment decisions by diversified fund managers prioritizing growth opportunities. Regarding market performance, Rexford's shares were trading around $38.75 as of Monday, displaying virtually no change over the previous year. This performance notably trails behind the S&P 500 index, which has advanced approximately 15.5% during the same period. Overall, the reduction in Duff & Phelps' stake in Rexford suggests a strategic pivot reflective of a maturing industrial REIT landscape, as investors weigh Rexford's steady operational profile against competing real estate investment options offering potentially higher growth prospects.