Elliott sees opportunities to create value at warehouse REIT Rexford Industrial

Company: Rexford Industrial Realty (REXR)

Business: Rexford Industrial Realty is a self-administered and self-managed full-service real estate investment trust (REIT). The company is focused on owning, operating and acquiring industrial properties in Southern California infill markets. It acquires, owns, improves, redevelops, leases and manages industrial real estate principally located in Southern California infill markets, through Rexford Industrial Realty, L.P. (Operating Partnership) and its subsidiaries. The company also acquires or provides mortgage debt secured by industrial zoned property or property suitable for industrial development. It provides property management services and leasing services to related party property owners. Its property management services include performing property inspections, monitoring repairs and maintenance, maintaining tenant relations and providing financial and accounting oversight. Its portfolio consists of 424 properties with approximately 51.0 million rentable square feet.

Stock Market Value: $9.47 billion ($40.01 per share)

Activist: Elliott Investment Management

Ownership: n/a

Average Cost: n/a

Activist Commentary: Elliott is a multistrategy investment firm that manages about $76.1 billion in assets (as of June 30, 2025) and is one of the oldest firms of its type under continuous management. Known for its extensive due diligence and resources, Elliott regularly follows companies for years before making an investment. Elliott is the most active of activist investors, engaging with companies across industries and multiple geographies.

What's happening

On Aug. 27, Elliott announced that they have taken a position in Rexford Industrial Realty.

Behind the scenes

Rexford is an internally managed industrial REIT focused on the Southern California market. The industrial REIT space has benefited from strong secular tailwinds, as the rise of e-commerce, which requires more warehouse space on average than a traditional retail business, has driven up warehousing needs over time. Moreover, Southern California is a particularly attractive location due to entitlement challenges, land scarcity, proximity to ports and its dense urban population, all of which have fueled demand and fast rent growth. Historically, this prime and irreplaceable portfolio has commanded a top of the market valuation, trading at a 20-30% premium to net asset value (NAV) and an 8-turn premium to peers on an adjusted funds from operations (AFFO) basis.

However, as we have seen many times before with many activists, REITs are inherently poorly governed and attract management teams with misaligned interests. Rexford is no different. Despite being a California-based company, they are domiciled in Maryland, a state that is infamous for management friendly regulations, including the Maryland Unsolicited Takeovers Act, which allows the company to classify its board without shareholder approval.

A California REIT incorporating in Maryland is not for convenience reasons, but more for entrenchment purposes. It is this type of company that would also have a seven-person board with a majority (including two co-CEOs) being members for over 10 years and owning approximately 1% of outstanding common stock as a group, almost all of which was granted to them. Once setup like this, the REIT playbook is generally to take on debt, issue shares and buy as much property as you can because management's upside is tied more to the level of assets managed than stock price. Also, at cocktail parties and clubs, it is “cool” to manage billions of dollars of properties. So, since its IPO in 2013, the company has increased its share count by over 9x, increased debt from $193 million to $3.5 billion and grew assets from $555 million to $12.6 billion. This strategy worked for a while when Rexford traded at a large premium to the underlying value of its real estate, but it finally caught up to them as sales, general and administrative expenses bloated, corporate governance eroded and executive compensation became loaded. (Two CEOs at $13 million each). As its premium to NAV started to decline, so did this strategy and Rexford now trades at a 20% discount to NAV and a 5-6 turn AFFO discount to peers with its stock price down to $40 per share (prior to Elliott's announcement) from a high of more than $80 in December 2021.

Luckily for shareholders, the time for change has come, as Elliott Investment Management has disclosed a top five position in Rexford. While this implies a minimum of 5% economic exposure (approximately $400 million to 500 million), given Elliott's investment history, their exposure is likely at least $1 billion of their $76 billion of assets.

Elliott has a rich history of driving change at companies like Rexford, so we expect them to advocate for better corporate governance, better capital allocation, and restore the company's strategic focus on creating shareholder value.

While it is important to note that activism can be more challenging in Maryland, it has not acted as a prohibition, especially for experienced and committed activists like Elliott. In fact, the tools available to the company that would ordinarily discourage activism are in this situation more of poison chalice. Any attempt by management to entrench themselves in the face of an activist would only further damage their reputation and support Elliott's case that change is warranted. So, we would expect Elliott to fare well in a proxy fight here if it came to that. But we do not think it will come to that.

When an activist engages with a company, it often puts that company in pseudo-play, getting the attention of strategic investors and private equity. This dynamic is even greater for a company like Rexford that has long been the subject of takeover speculation.

For Rexford, their premium assets, the consolidation in the REIT industry and their present discounted valuation makes the company a natural acquisition candidate. Moreover, Elliott also has a robust history of catalyzing strategic outcomes at REITs.

At Healthcare Trust of America (formerly HTA), Elliott successfully pushed for a strategic review, which ultimately led to a merger between HTA and Healthcare Realty Trust to form the largest medical office property owner in the U.S.

Given Rexford's current 20% discount to NAV, we believe that any takeout would occur at least at NAV, but more likely at a premium given the company's historical valuation and portfolio quality.

If such an opportunity were to materialize, as a fiduciary to its investors and Rexford shareholders, Elliott would weigh the value from an acquisition against the long-term standalone plan and advocate for whichever path would deliver the best value for shareholders. Considering the long-term plan would likely require the time and uncertainty of a board and management reconstitution, we would think that an acquisition at a reasonable premium would be the preferred path here.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.