Rexford Industrial Realty, Inc. (REXR) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presented a mixed outlook. The company raised guidance slightly, indicating positive sentiment, but faced challenges with occupancy declines and tenant issues. The Q&A revealed uncertainties about rent stabilization and unclear timelines for earnings recovery. Despite strong leasing activity and capital recycling, the negative same-store guidance and potential tenant risks offset positives. Overall, the sentiment is neutral as positive factors are balanced by significant uncertainties and challenges.

Key Financial Performance

Core FFO per share (Q4) $0.59, in line with expectations, driven by higher same-property NOI growth, lower G&A expense, and accretive share buybacks, partially offset by higher bad debt.

Core FFO per share (Full Year) $2.40, at the high end of initial expectations, after adjusting for co-CEO transition severance charges and other nonrecurring costs.

Real estate impairments (Q4) $89 million, related to development sites elected to be sold, allowing redirection of $285 million of capital into higher-yielding uses.

Annualized incremental NOI (2025) Nearly $40 million, generated from approximately 2 million square feet of repositioning and development leases.

Total portfolio occupancy (Q4) 90.2%, down 160 basis points sequentially, due to near-term repositioning and development starts, tenant consolidations or expansions, expiration of short-term renewals, and tenant financial difficulties.

Market rents (Portfolio) Down 1% quarter-over-quarter and 20% since early 2023, putting pressure on expected re-leasing spreads for 2026.

Share buybacks (Q4) $100 million, bringing the 2025 full-year total to $250 million, driven by market dislocation between share price and intrinsic value.

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Operating Highlights

Market Rent Decline: Market rents declined 10 basis points in the quarter and 9% year-over-year, reflecting broader market softness.

Vacancy Increase: Vacancy increased 30 basis points during the quarter, with net absorption being negative, though early signs of stabilization are emerging in select submarkets.

Leasing Activity: Executed 3 million square feet of leasing in Q4 2025, maintaining cash flow and occupancy.

Development Pipeline Adjustment: Identified 6 projects (850,000 square feet) for disposal, reallocating $285 million of capital to higher-yielding opportunities.

Dispositions: Sold 7 properties in 2025 for $218 million and targeting $400-$500 million in dispositions for 2026 to recycle capital.

Operating Efficiencies: Reduced G&A as a percentage of revenue to 6% for 2026, aligning executive compensation with shareholder priorities.

Strategic Shift in Development: Shifted focus to derisk cash flows and reduce development exposure, with $89 million in real estate impairments recognized for projects no longer meeting investment hurdles.

Capital Allocation Strategy: Revamped underwriting criteria to align with current cost of capital and market dynamics, focusing on maximizing risk-adjusted returns.

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Risk or Challenges

Market Rent Decline: Market rents within Rexford's portfolio have fallen 20% since early 2023, with a 1% decline in the last quarter. This puts pressure on re-leasing spreads for 2026 as leases signed during the market peak expire.

Occupancy Pressure: Total portfolio occupancy ended the quarter at 90.2%, down 160 basis points sequentially. This decline is driven by tenant consolidations, expansions, short-term renewal expirations, and tenant financial difficulties.

Development Exposure: Rexford recognized $89 million in real estate impairments related to development sites that no longer meet investment hurdles. These projects are being sold to redirect $285 million into higher-yielding uses, reflecting a strategic shift to reduce development exposure.

Macroeconomic Forces: Broader macroeconomic conditions and elevated market availability are influencing tenant demand, leading to a more measured pace of leasing activity.

Negative Net Absorption: Net absorption was negative this quarter, reflecting broader market softness, though some early signs of stabilization are emerging in select submarkets.

Tenant Financial Difficulties: Some tenants are experiencing financial difficulties, contributing to move-outs and impacting occupancy rates.

Dispositions and Capital Recycling: Rexford plans to dispose of $400-$500 million in assets in 2026 to recycle capital into accretive opportunities, but this strategy depends on market conditions and execution risks.

G&A Expense Reduction: Efforts to reduce G&A expenses to 6% of revenue are underway, but further reductions may face challenges as the company seeks additional efficiencies.

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Guidance & Outlook

2026 Core FFO per Share Guidance: The company is introducing 2026 core FFO per share guidance of $2.35 to $2.40, reflecting a mix of factors including repositioning and development activities, same-property NOI growth, and market rent trends.

Repositioning and Development: Approximately 1.2 million square feet of value-added projects are expected to stabilize and commence rent in 2026, generating $20 million of annualized NOI, with the majority coming online by midyear. Conversely, $12 million of annualized in-place NOI will come offline due to new construction starts.

Same-Property NOI Growth: Same-property NOI growth on a net effective basis is expected to decline approximately 2% in 2026. Key assumptions include net effective re-leasing spreads of 5% to 10%, average occupancy of approximately 95%, and bad debt of 75 basis points of revenue.

Dispositions: The company expects to sell roughly $450 million of assets in 2026, with nearly $230 million already under contract or accepted offer. Proceeds will be redeployed toward higher risk-adjusted returns, including repositioning and development projects and opportunistic share repurchases.

Market Rent Trends: Market rents within the portfolio have fallen 20% since early 2023, with a 1% decline in the last quarter. This trend is expected to continue impacting re-leasing spreads for 2026.

Operational Efficiency: The company is targeting a reduction in G&A as a percentage of revenue to 6% in 2026, in line with its commitment to drive operating efficiencies.

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Shareholder Return Plan

Share Buybacks in 2025: During the quarter, Rexford repurchased $100 million of shares, bringing the 2025 full-year total to $250 million. Share buybacks will remain a consideration in 2026, subject to a meaningful discount to intrinsic value, competing capital needs, and preservation of balance sheet strength.

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Key Q&A

Q:Can you provide more understanding on the Tireco lease resigning and why it was addressed now instead of later?

A:The lease was expiring in January 2027, and Tireco, the largest tenant, sought an early renewal for a longer lease term. Management strategically negotiated a 3-year lease to reset at market rents sooner. The lease was above market, with a 30% roll-down. This decision prioritized occupancy, preserved cash flow, and derisked future growth given market dynamics.

Q:Do you have any additional commentary on how much further rents are expected to decline and when an inflection point might occur?

A:Management observed signs of stabilization but also challenges. Leasing activity levels have moderated, and net absorption remains negative. They are unable to call an inflection point but believe the market is bouncing around the bottom. Stabilization indicators include steady leasing activity, early renewals, and moderated rent declines.

Q:What is driving the occupancy decline, and can you elaborate on the 75 basis points of bad debt?

A:Occupancy decline is driven by longer downtime for leasing and repositioning/redevelopment. Specific move-outs include properties in L.A. and development pipeline assets. Bad debt increased to 75 basis points due to two large tenant vacancies in Q4, with a similar expectation for 2026 due to a handful of larger tenants on the watch list.

Q:Were there any particular industries for the 2026 reserves watch list?

A:The watch list includes tenants with larger spaces, with some concentration in logistics. Issues stem from misalignment between contract revenue and occupancy costs, creating disruption. Management is focused on resolving these issues with tenants.

Q:What are the expectations for leasing and rents in 2026, and how do they align with the expiration schedule?

A:Re-leasing spreads are expected to be 5%-10%, with rents around $16.75-$17 per square foot. Tireco's lease has a 30% negative spread, impacting cash NOI expectations. Cash re-leasing spreads are expected to be flat to negative 5%.

Q:Can you provide color on the year-end same-store occupancy and expectations for 2026?

A:Year-end same-store occupancy was 96.5%, but the starting point for 2026 is 95.6% due to changes in the property pool. Occupancy is expected to decelerate throughout 2026, with a midpoint guidance of 95%.

Q:Can you explain the cash same-store guidance and the impact of the Tireco lease extension?

A:Cash same-store guidance is negative 1%-2%. Components include a 60 basis point occupancy decline (100 basis points impact), NOI margin decline (50 basis points), lower term fees and Tireco impact (75 basis points), bad debt (50 basis points), concessions (200 basis points), and contractual bumps (+3.25%). Tireco's lease extension impacts cash due to concessions in 2026.

Q:What is the measurement of success for the company given the current challenges?

A:Success is measured by driving outsized shareholder returns. Management is focused on capital allocation discipline, rigorous underwriting, limiting development exposure, and driving value creation. They aim to operate efficiently and assess opportunities to maximize shareholder value.

Q:What are the expectations for mark-to-market trends and the impact of dispositions?

A:Mark-to-market trends were offset in Q4, with positive impacts from converting below-market leases and negative impacts from vacated above-market spaces. Dispositions include $230 million in near-term development pipeline and other properties, with a programmatic strategy to be neutral to accretive to FFO and NAV growth.

Q:What are you seeing in the bidder pool and pricing for dispositions?

A:The bidder pool varies by asset type. Development sites attract local developers, while user sales are significant, often at premium pricing. Near-term development sites are under contract for $135 million, and operating properties for $95 million, with cap rates around 4%.

Q:Has the view on port exposure and tariffs evolved, and what is the impact on tenants?

A:Port exposure remains limited, with tenant focus on local consumption. Tariffs influence tenant decisions, leading to conservative approaches, consolidations, and space rationalizations to drive operating efficiencies.

Q:How does the 30% roll-down at Tireco compare to the 12% change in ABR?

A:The new lease shifted to a gross lease from a triple net lease. On an apples-to-apples basis, the re-lease was unfavorable by 30%, including rent and triple net charges.

Q:What are the expected sources and uses of cash for 2026?

A:Sources include $166 million in cash and $450 million from dispositions, totaling $616 million. Uses include $203 million for development and repositioning, leaving $413 million for share repurchases or other investments.

Q:Review of Unclear Management Responses

A:Management avoided directly answering when an inflection point in rents might occur, using vague language about stabilization and challenges. They also did not provide clear specifics on the timeline for earnings recovery amidst dilution from dispositions and tepid leasing.

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Earnings Word Cloud

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REXR Transcript

Rexford Industrial Realty, Inc. (REXR) Q4 2025 Earnings Call Transcript

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The earnings call summary and Q&A reveal strong financial performance, a strategic focus on occupancy and cash flow, and resilience against macroeconomic uncertainties. Despite some market challenges, the company has a robust pipeline for redevelopment and acquisitions, and tenant health remains strong. The reaffirmed FFO outlook and significant leasing activity support a positive sentiment. However, macroeconomic uncertainty and some unclear responses regarding shareholder discussions slightly temper the overall outlook, but not enough to outweigh the positive factors.

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The earnings call summary presents mixed signals. While there are positive aspects like strong tenant base diversity, liquidity, and debt management, there are concerns about market rent declines, delays in lease-ups, and unclear management responses on certain strategic aspects. The Q&A session highlighted market uncertainties, such as tariff impacts and cap rate trends, but also noted strong leasing activity. The lack of guidance on share buybacks and redevelopment hurdle rates adds uncertainty. These mixed factors suggest a neutral sentiment, with no clear catalyst for significant stock price movement.

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REXR Report

Rexford Industrial Realty, Inc. 10-Q

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