Business Context and Reporting Period
Company: Rexford Industrial Realty, Inc. (Reporting as "Predecessor" prior to IPO)
Reporting Period: Quarterly and Six Months ended June 30, 2013
Business Overview: A self-administered REIT focused on owning and operating industrial properties in Southern California infill markets. The financial statements reflect the combined results of the Predecessor entities (Rexford Industrial, LLC and related funds) prior to the July 24, 2013 Initial Public Offering (IPO) and formation transactions.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2013 | Six Months Ended June 30, 2012 |
|---|---|---|
| Total Revenues | $20,139,000 | $16,202,000 |
| Net Income (Loss) | $1,586,000 | $(4,573,000) |
| Net Loss Attributable to Predecessor | $(1,958,000) | $(1,631,000) |
| Net Cash Provided by Operating Activities | $2,402,000 | $181,000 |
| Net Cash Used in Investing Activities | $(47,290,000) | $(11,137,000) |
| Net Cash Provided by Financing Activities | $26,340,000 | $9,617,000 |
| Total Assets | $452,391,000 | $420,496,000 |
| Total Liabilities | $358,996,000 | $324,248,000 |
| Notes Payable (Debt) | $351,187,000 | $302,830,000 |
| Cash and Cash Equivalents | $24,951,000 | $43,499,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 24.3% year-over-year, driven by a 22.8% increase in rental revenues and a 39.7% increase in tenant reimbursements. This growth is attributed to new acquisitions (four properties in 2013) and improved occupancy rates (88.3% occupied as of June 30, 2013).
- Profitability: The company reported a Net Income of $1.6 million for the six months ended June 30, 2013, compared to a Net Loss of $4.6 million in the prior year. This turnaround was significantly aided by a $4.99 million gain on the sale of real estate classified as discontinued operations.
- Continuing Operations: Excluding discontinued operations, the Predecessor reported a Net Loss from Continuing Operations of $3.1 million, compared to $4.5 million in the prior year. The improvement was offset by a $0.9 million equity loss from unconsolidated real estate entities (primarily due to an impairment charge at La Jolla Sorrento).
- Acquisitions and Dispositions: The company acquired four properties for approximately $73.8 million and disposed of five properties, generating a gain of $4.99 million. Net cash used in investing activities increased significantly to $47.3 million due to acquisition spending.
Guidance, Outlook, and Risks
- Post-IPO Capital Structure: Following the July 24, 2013 IPO, the company repaid $303.3 million of predecessor debt. As of July 31, 2013, total indebtedness was reduced to approximately $120.7 million. The company secured a $200 million senior unsecured revolving credit facility and a $60 million term loan.
- Market Outlook: Management notes gradual improvements in market conditions, specifically in leasing velocity and rental rate stabilization. However, San Diego County markets remain slower to recover compared to Los Angeles and Orange Counties.
- Key Risks:
- Interest Rate Risk: Approximately 95.7% of outstanding long-term debt is exposed to short-term interest rate fluctuations (LIBOR-based). A 50 basis point increase in LIBOR would decrease future earnings by approximately $0.6 million annually.
- REIT Qualification: The company must maintain REIT status to avoid federal income taxes, requiring the distribution of at least 90% of adjusted taxable income.
- Market Conditions: Risks include decreased rental rates, increasing vacancy rates, and potential tenant defaults or bankruptcies.
Investor Verification Checklist
- Debt Refinancing: Verify the terms and interest rates of the new $60 million term loan and $200 million revolving credit facility entered into post-IPO.
- Discontinued Operations: Confirm that the $4.99 million gain on sale of real estate is non-recurring and understand the impact of excluding these assets on future operating results.
- Impairment Charges: Review the details of the $0.8 million impairment charge associated with the La Jolla Sorrento joint venture interest.
- Occupancy Trends: Monitor occupancy rates in San Diego County, which lag behind other markets, and the success of redevelopment projects on three properties (207,333 sq. ft.).
- Capital Expenditures: Assess the $1.2 million in capital expenditures for the six-month period and future requirements for tenant improvements and leasing commissions.