Industrial REIT Q1 2025 Sector Update

• Rexford prefers redevelopment over buybacks, though buybacks at a discount could signal market confidence.
• Industrial REITs had positive Q1 2025 earnings, with Prologis and Rexford maintaining guidance despite market uncertainties and tariff impacts.
• Tariffs have reduced leasing pace by 20%, but stockpiling inventory could benefit industrial REITs, potentially offsetting some tenant challenges.

Article

The industrial REITs had a surprisingly positive batch of Q1 2025 earnings releases.

Terreno (TRNO) provides the first update, but the update only covers operating activity in the first quarter. It’s useful, but not a key document in this case. We are primarily interested in commentary on the environment in April and the change in guidance. TRNO’s update doesn’t include that kind of commentary.

Rexford (REXR) and Prologis (PLD) both reported first-quarter results after the close on 4/16/2025.

Note: I’ll be discussing the earnings call commentary as part of this article. The Prologis earnings call was last night, so we have a transcript. I was listening to the REXR earnings call live and the transcript doesn’t exist at the time I’m preparing this article. Terreno does not host an earnings call. Disclosure: Long TRNO, PLD, and REXR.

Guidance

TRNO:

• TRNO does not provide guidance.

REXR:

• Guidance was unchanged for Core FFO, same property NOI, cash same property NOI, and even occupancy.
• Projected net interest expense is down slightly, but this is not a material impact. Around one fifth of a penny per share.

These results are positive. I was expecting to see a dip in guidance to reflect increased uncertainty from tenants.

Using the earnings call, we had another update:

• During the Q4 2024 earnings call, REXR was forecasting GAAP leasing spreads of 30% and cash leasing spreads of 20%.
• REXR is now forecasting GAAP leasing spreads of 25% and cash leasing spreads of 15%. So those spreads dropped about 5%.

PLD:

• Guidance was unchanged for Core FFO, Core FFO excluding net promote income, same store NOI, cash same store NOI, and occupancy.
• PLD reduced guidance for development stabilizations, development starts, dispositions, and contributions.

In English? PLD will sell fewer properties and reduce their development activity because of greater uncertainty in the market. Guidance for acquisitions was steady, suggesting PLD feels confident in going out to bid on properties.

Other Insights

When I was reviewing REXR’s Q4 2024 results, I noted that REXR typically provides lowball guidance at the start of the year. Consequently, we usually expect to see guidance increased throughout the year.

We could argue that REXR not raising guidance is similar to reducing guidance, but I expected the impact of tariffs on leasing decisions (delaying tenants) to outweigh the typical boost we would see to guidance. 

Leasing Spreads

Cash leasing spreads for Prologis and Terreno were stronger than spreads for Rexford. That’s not surprising. We’ve seen more pressure on rents in California than in the other markets. 

What Happened to Rexford?

I’ll keep it brief. Both REITs were looking great after their earnings releases. Both bounced higher. In the market action today, we saw both climbing throughout the day. I was a bit disappointed because I liked the REXR results and was interested in increasing my position. Yeah, I’ve got a pretty big unrealized loss on REXR overall. A significant chunk of that is because of the tariffs that rocked markets this month. 

The earnings call started at 1 PM Eastern. 

From 1 PM Eastern to about 1:30 PM Eastern:

• The REIT index ETFs slid about 0.5% before mostly bouncing back.
• PLD slid about 1%, before mostly bouncing back. 
• REXR slid about 1.7% before continuing to slump.

I’m going to attribute the afternoon slump to some comments from the earnings call. Specifically, management referencing their redevelopment and repositioning program as the best use of capital rather than buybacks. I disagree with management regarding the best use of capital, but it’s a situation where reasonable people could take each side.

Use of Capital

Rexford previously raised capital by issuing shares around $49. I wasn’t a huge fan of their decisions at the time, but it looks much better in hindsight. Of course, they also put that cash to work buying properties and many of those properties would probably trade at lower prices today. This brings us to the one area where I disagree with management’s decision. 

To be clear, the major industrial REITs have typically demonstrated solid decisions. Management isn’t making the “wrong” decision. There isn’t a right or wrong approach here.

Rexford’s Approach

On the earnings call, Rexford was asking about putting their cash to use on a buyback program. I believe that would be a wise decision. However, Rexford’s executives argue that the best use of capital is their redevelopment and repositioning program. If you run the numbers, you can argue for either side. In my opinion, the case for buybacks is superior today.

The Hurdle Rate

The big question is what hurdle rate should be used. Intelligent people can disagree here. Whichever side is presented first will look very good until investors hear the other side.