There’s Still Gold Out West

By Brad Thomas, Editor, Wide Moat Daily

Southern California is in the news… for all the wrong reasons.

Over the weekend, protests broke out at several Immigration and Customs Enforcement (“ICE”) facilities throughout Los Angeles.

They turned violent.

By now, I’m sure readers have seen the images… rocks hurled at police, cars lit on fire, men in riot gear shooting tear gas into crowds.

The Trump administration called in the National Guard – and a number of Marines – to restore order over the protests of the state’s governor and the L.A. mayor. And this at a time when much of the city is still reeling from the recent wildfires.

With so much going on, it can be easy to forget that Southern California just experienced one of the worst wildfires in the state’s history back in January. The Eaton and Palisades fires destroyed almost 40,000 acres of homes and businesses. And the fires killed more than two dozen people, according to the Los Angeles Times.

It’s going to be years before that part of the state is back to what it once was. And that might be a generous assessment. Chances are good that that part of California never really returns to its former glory.

On top of all that, there are still more troubles for the Golden State…

California’s Exodus

“Go West, young man” was a phrase coined by newspaper magnate Horace Greeley in the mid-19th century. It summed up the promise and potential of the country’s westward expansion during that era. And no place epitomized that promise and potential quite like California.

Especially during the boom years after World War II, California’s population and economy surged. Here’s how I described it in a recent issue of The Wide Moat Letter:

California had become a major hub of military industry over the years. Lockheed Aircraft had opened its Burbank plant in 1928, a major supplier during the war. …

A little further north, some very interesting things were happening with groundbreaking technology. Bill Hewlett and David Packard founded a company called Hewlett-Packard in their Palo Alto garage in 1939. It would prove to be the first of many garage-born tech firms from that area.

Combine all this with the rapid growth of the movie industry during the war (sometimes for propaganda purposes) and there were plenty of jobs to be had in California. …

Around the same time, developers embarked on a bold new experiment. It was a residential community that wasn’t quite a city but also wasn’t not a city. Today, we know it as the “suburbs.”

Many GIs returning home – armed with their low-interest loan guarantees – looked west and saw plentiful jobs, plentiful housing, and plentiful sunshine. It was all the ingredients for a population boom. And that’s exactly what California (and Southern California, in particular) got.

The rest is history…

California became the country’s most populous state in 1962 and eventually grew its economy to be the world’s fourth largest. Things were good out west… very good.

And then they weren’t.

That’s because California has been quickly losing its most important resource… Californians.

The Public Policy Institute of California summed up the situation in a report from February of this year:

Much has been made of the California exodus to other states, and rightly so. This migration, over the decades, has the power to reshape the state. From 2010 through 2023 about 9.2 million people moved from California to other states, while only 6.7 million people moved to California from other parts of the country, according to the American Community Survey.

And contrary to what you might believe, this has been a problem for decades. A chart from that same report tells the story.

Some of the primary drivers for the exodus are the high cost of living (have you looked at gas prices?) and the burdensome taxation and regulatory regime. For a state that once saw tremendous population growth in the mid-20th century, it’s a dramatic turnaround.

Many of these people (some call themselves “refugees”) are putting down roots in the American Southeast. So much so that Texas and Florida are both expected to pick up four new House seats by 2030 as a result of the influx of new residents.

All of this is a big reason why I’ve avoided recommending any investments with high exposure to Californian real estate… especially California office buildings. And it’s why a major investment theme of ours has been a “New American Migration” to the Sunbelt (paid-up subscribers can catch up here).

I’m not “picking on” California. It’s a beautiful part of the country. And in my experience, the residents are generous and hospitable.

But it’s tough out west. And, unless something changes, the larger trends for the state don’t look promising for real estate in general.

But, having said all that, it doesn’t mean there aren’t interesting opportunities to be found.

In fact, I’ve had my eye on one undervalued gem in the heart of Los Angeles. And I think it deserves to be on your radar as well.

This Southern California Warehouse REIT is Worth a Look

Despite all the troubles I just listed, the Southern California industrial market is the largest in the U.S. and the fourth largest in the world. It contains over 2.1 billion square feet of space.

In addition, Southern California has the lowest vacancy rates in the U.S. (4.7%) and the largest zone of regional consumption with an estimated population of 24 million and 600k businesses.

There are many demand drivers there, such as e-commerce, electric vehicles, manufacturing, aerospace, defense, medical, and first-mile/last-mile access.

This leads me to Rexford Industrial Realty (REXR), a pure-play Southern California real estate investment trust (“REIT”) that offers the solid competitive advantage of owning warehouses with low supply risk.

Indeed, Rexford owns 424 industrial properties (over 51 million square feet) in high barrier-to-entry markets with scarce developable land. That gives the company pricing power.

There’s a limited new supply replacing existing, obsolete buildings. And this provides Rexford with a monopoly-like business model.

Rexford Investor Presentation

Rexford also has a strong balance sheet: it’s rated BBB+/Baa2 with solid debt metrics that include 3.9 times net debt/EBITDA (earnings before interest, taxes, depreciation, and amortization) and 22.8% net debt to total capitalization. At the end of its first quarter in 2025, the company had north of $1.6 billion of liquidity, including $608 million in cash.

Also, in its first quarter, the core funds from operations (“FFO”) measurement was $0.62 per share, representing 7% growth year over year. And the company maintained its 2025 full-year guidance of $2.37 to $2.41 per share.

I view Rexford as a preeminent warehouse landlord with very diverse (1,600-plus tenants) revenue drivers.

However, Mr. Market has thrown out the baby with the bathwater, as evidenced by the current valuation of 18.6 P/AFFO (price to adjusted FFO). That’s dirt-cheap for a company of this quality. Especially when you compare the company to its historical valuation of 26.1 times.

The reason, of course, has mostly to do with tariffs. Much of Rexford’s warehouses are stocked with items coming through ports in Southern California. And the tariffs have thrown a question mark into that equation.

There’s always something to be worried about. But it’s hard to keep a great REIT like Rexford down over the long term. But, thanks to the drawdown, the dividend yield looks attractive. The dividend currently yields 4.7% and is covered by a payout ratio of 83%.

Southern California has its troubles… no doubt.

But the supply-demand fundamentals are solid for Rexford. And its virtual monopoly makes it a Southern California gem that deserves to be on your radar.

Regards,

Brad Thomas
Editor, The Wide Moat Daily