Exceptional High-Dividend-Yield Shares experiencing a 50% decrease, perfect for prolonged investment and ownership.
Exceptional High-Dividend-Yield Shares experiencing a 50% decrease, perfect for prolonged investment and ownership.
Investors recently saw significant growth in shares of Rexford Real Estate Investment Trust (REXR), post-pandemic, due to surging demand for industrial warehouses. At the time, it was regarded as a 'hot' stock. However, the market has now shifted its focus to emerging trends like artificial intelligence, causing a significant drop in Rexford's stock price since its peak in 2022. Despite this decline, the stock offers an appealing 4.1% dividend yield.
Let's delve into why this stock might be a long-term income investment for patient investors.
What does Rexford Real Estate Investment Trust do?
Rexford, being a Real Estate Investment Trust (REIT), specializes in buying properties and leasing them out. Its business model is straightforward. Yet, Rexford is distinguished by its intense focus. It exclusively purchases industrial assets, whereas many other REITs favor diversification in property types.
Moreover, Rexford's property portfolio is geographically limited to Southern California, setting it apart from its industrial peers, who prefer broader geographical exposure. This strategy could be considered high-risk, with potential pitfalls if industrial assets in Southern California encounter difficulties. However, it must be balanced against some compelling factors.
For instance, Southern California boasts the largest industrial market in the U.S., primarily due to its position as a gateway for Asian imports. The region's vacancy rate, while experiencing a rise since 2023, remains lower than the average vacancy rate of industrial assets across the broader U.S. market.
Furthermore, several reasons suggest the persistence of Southern California's advantage. The scarcity of available land and the tendency of industrial properties to be repurposed for residential housing, or simply redeveloped to appeal more to tenants, help minimize the expansion of the supply.
Southern California's appealing market is unlikely to lose its charm. If you had to choose a region within the industrial sector, this would be an astute decision.
How is Rexford Real Estate Investment Trust performing now?
The demand for industrial properties surged post-pandemic, resulting in substantial rent increases. However, with demand dwindling, as reflected by the decline in occupancy in Southern California since 2023, doubts about Rexford's future prospects may be underlying the stock's price dip. Despite these concerns, Rexford's performance remains robust.
In mid-November 2024, Rexford announced key statistics in a press release. Occupancy stood at 95.9%, indicating a solid foundation. Granted, this figure is lower than the peak, but it is not indicative of serious concerns.
Furthermore, renewed or newly signed leases during the first half of the fourth quarter saw rental increases of up to 80%, surpassing the expiring lease in value. Annual rent hikes of 3.9% were also reported, bolstering the company's future earnings for several years.
While the Southern California industrial market may not be as dynamic as it once was, it remains resilient.
Additionally, Rexford has allocated around $450 million to capital spending projects, aimed at redeveloping existing assets. This investment will pave the way for further rental increases in the future. In fact, the backlog of work is projected to last until 2027, ensuring redevelopment continues to offer a multi-year boost.
Why should you consider investing in Rexford Real Estate Investment Trust today?
While Rexford remains an industrially robust REIT, the primary appeal lies in its impressive 4.1% dividend yield, which is near its historical high. It appears that this well-positioned REIT has been placed on sale due to broader market anxieties concerning industrial real estate.
Considering Rexford's focus on a favorable market and persistent performance, it may be an enticing opportunity for income investors who think in decades rather than days.
In light of the current market focus shifting away from industrial real estate, Rexford's 4.1% dividend yield, near its historical high, could attract income investors looking for long-term investments. Despite concerns about the declining demand for industrial properties, Rexford's robust performance, including an 80% rental increase and a substantial allocation for capital spending projects, indicates potential for future growth.
Recognizing Rexford's focus on a favorable market and its persistent performance, investors who prioritize income over short-term gains and think in decades rather than days may find this dividend-yielding REIT an attractive investment opportunity.