Rexford Industrial Realty, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Rexford is an industrial REIT focused on Southern California infill markets. At quarter-end, its portfolio comprised 362 properties and approximately 44.0 million rentable square feet.
Financial and operating performance
- Revenue: $186.2 million, up 32.3%; rental income was $185.2 million, up 31.7%. Growth reflects acquisitions as well as higher same-property rents.
- Profit: Net income was $63.6 million, up 30.0%; net income attributable to common stockholders was $57.9 million, up 31.8%. Diluted EPS was $0.30, versus $0.27.
- Property performance: NOI, a non-GAAP measure, was $142.3 million, up 32.8%; Cash NOI was $126.4 million, versus $95.2 million. Same Property Portfolio rental income rose 6.1%, while average occupancy declined to 98.0% from 99.0%.
- Funds from operations: Core FFO attributable to common stockholders was $102.7 million, up 34.0% from $76.6 million. Core FFO is a non-GAAP measure and should be read alongside GAAP results.
- Cash flow: Operating activities provided $119.5 million, compared with $91.6 million. Investing activities used $765.9 million, primarily for acquisitions and capital expenditures; financing activities provided $879.4 million. Cash, cash equivalents and restricted cash ended at $269.9 million, including $253.6 million unrestricted cash.
- Balance sheet and debt: Total assets were $10.24 billion and total equity was $7.56 billion. Debt principal was $2.25 billion ($2.23 billion carrying value); company-reported net debt to total combined market capitalization was approximately 13.6%. The $1.0 billion revolving facility was undrawn, and the company reported covenant compliance. Reported credit ratings were BBB+ (S&P and Fitch) and Baa2 (Moody’s).
- Shareholder distributions: The board declared a $0.38 per-share common dividend for Q2 2023, payable July 17, 2023. Preferred dividends were also declared.
Material changes and capital allocation
- Completed five Q1 acquisitions totaling $762.2 million, covering 1.8 million square feet; acquired three additional properties for $83.3 million after quarter-end. Sold one property for $17.0 million and recorded a $12.1 million gain.
- Issued $300 million of 5.000% senior notes due 2028. Q1 common-stock issuance generated approximately $653 million net proceeds, including settlement of forward equity agreements; common shares outstanding increased from 189.1 million at year-end to 200.8 million at quarter-end.
- Q1 total-portfolio revenue growth substantially exceeded same-property growth, reflecting acquisitions. Same Property Portfolio occupancy was 98.0% at quarter-end versus 99.1% a year earlier.
- Executed 122 new and renewal leases covering 1.8 million square feet. Reported leasing spreads were 80.2% GAAP and 59.7% cash in the highlights; detailed leasing tables show new-lease spreads of 108.8% GAAP/87.6% cash and renewal spreads of 74.9%/54.5%, with exclusions described in the filing.
Outlook, risks and unusual items
- No formal full-year earnings or FFO guidance is provided in the filing. Management expects market rents to continue rising through 2023 at a more moderate pace than in recent years and anticipates positive renewal rates and leasing spreads, while noting these trends are not assured.
- Management estimates approximately $412.2 million of capital will be needed over the next three years to complete identified repositioning and redevelopment projects. At March 31, 19 properties were under repositioning or redevelopment, five were in lease-up, and eight additional projects were in the near-term pipeline.
- Management cites inflation, interest rates, construction-cost increases, supply-chain and permitting delays, tenant demand, and West Coast port activity and labor negotiations as risks. Higher costs or delays could reduce redevelopment yields. All properties are in Southern California, creating geographic concentration; tenant credit and natural-disaster risks also apply.
- Debt principal due within 12 months was reported as $11.0 million, but scheduled interest payments over that period were estimated at $78.0 million. A $179.7 million commitment for tenant improvements and construction work was outstanding.
- Interest-rate exposure is time-sensitive: as of March 31, the market-risk disclosure identifies $460 million of variable-rate debt and estimates a 50-basis-point SOFR change would affect annual interest expense by approximately $2.3 million. Forward swaps became effective April 3; the filing says all debt was fixed-rate under loan terms or swaps from that date.
- Unusual or notable items included $12.1 million of property-sale gains, a $0.2 million impairment charge on an office lease right-of-use asset, and $0.3 million of demolition costs. Q1 cash-flow-hedge adjustments reduced other comprehensive income by $5.3 million. No property impairment charges were recorded.
- The company reported no legal proceedings expected to have a material adverse effect and no material environmental liability known at quarter-end. It added a risk factor concerning financial-institution distress and potential effects on its deposits, tenants, and access to financing.
Most important facts for investors to verify
- Whether acquisitions and redevelopment spending generate returns sufficient to justify the substantial capital deployed, including the $412.2 million projected project cost.
- Leasing and occupancy trends, especially the gap between 93.8% total-portfolio occupancy and 97.4% stabilized-portfolio occupancy, and the execution of lease-up projects.
- Debt maturities, interest costs, swap effectiveness, and liquidity after the April 3 hedges; distinguish quarter-end variable-rate exposure from the post-hedge position.
- The effect of equity issuance and future ATM sales on per-share results and ownership dilution, alongside the funding needs for acquisitions and capital commitments.
- Lease-expiration exposure: 9.8% of portfolio square footage expires during the remainder of 2023 and 16.1% in 2024; assess renewal outcomes against the reported leasing spreads.