Rexford Industrial Realty, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Rexford is a REIT focused on industrial properties in Southern California infill markets. At quarter-end, its portfolio comprised 229 properties with approximately 27.6 million rentable square feet; it also managed 20 properties totaling approximately 1.0 million square feet.
Financial results and key metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $80.0 million | $64.4 million | $157.6 million | $124.8 million |
| Net income | $16.3 million | $16.0 million | $31.5 million | $26.7 million |
| Net income attributable to common stockholders | $11.4 million | $12.8 million | $22.2 million | $20.8 million |
| Diluted EPS | $0.10 | $0.12 | $0.19 | $0.20 |
| Net cash from operating activities | — | — | $71.2 million | $61.5 million |
| FFO attributable to common stockholders | $38.8 million | $32.0 million | $76.3 million | $61.4 million |
| NOI | $60.9 million | $48.5 million | $120.3 million | $94.3 million |
Rental income increased 25.4% in Q2 and 27.6% for the first half, reflecting acquisitions and same-property rent growth. Stabilized same-property rental income rose 3.0% in Q2 and 3.4% for the six-month period. Same-property NOI increased 9.1% in Q2 and 8.4% year to date. Total-portfolio NOI margin was approximately 76.3% in Q2 2020, versus 76.2% in Q2 2019, calculated as NOI divided by rental income.
Q2 net income attributable to common stockholders and EPS declined despite higher total net income. Preferred dividends and a larger weighted-average common share count contributed; the prior-year quarter also included a $4.8 million real-estate sale gain. The filing reports no property-sale gains in 2020.
Cash flow and investment: First-half operating cash flow was $71.2 million. Investing used $210.3 million, including $118.0 million for real estate acquisitions, $33.3 million of capital expenditures and $59.1 million of acquisition deposits. Financing provided $314.7 million, principally reflecting equity issuance. Cash and cash equivalents were $254.4 million at June 30.
Debt and liquidity: Principal debt was $908.3 million, with a weighted-average rate of 3.47% and average remaining maturity of 5.1 years. Approximately 94% was effectively fixed-rate; net debt to total combined market capitalization was approximately 10.5%. The $500 million revolving facility was undrawn, and the company reported $500 million of availability. Debt carrying value was $906.7 million. The largest scheduled principal maturities are $289.3 million in 2023 and $101.7 million in 2022. The company was in compliance with its debt covenants.
Material changes versus prior periods
- Q2 total revenue rose 24.2% year over year, while total expenses rose 19.6%; interest expense increased 18.8% to $7.4 million.
- First-half total revenue increased 26.4%; common-stockholder net income rose to $22.2 million from $20.8 million, but diluted EPS decreased to $0.19 from $0.20 as weighted-average shares increased.
- Common shares outstanding increased to 123.8 million from 113.8 million at December 31, 2019. A second-quarter public offering generated approximately $285.1 million net proceeds; first-half ATM sales generated $89.6 million net.
- First-half acquisitions included 21 properties and one small land parcel, reported at a gross purchase price of $352.6 million in the MD&A. The company also assumed $47.5 million of mortgage principal in connection with acquisitions.
COVID-19, outlook, risks and unusual items
- As of July 23, 2020, the company had received rent-relief requests from 334 tenants representing 26.7% of June 30 annualized base rent (ABR), and executed agreements with 259 tenants representing 23.7% of ABR. For Q2 billings, 87.2% had been collected before relief and 98.2% after adjusting for relief; July collection figures through July 23 were 92.2% and 94.1%, respectively.
- Q2 relief included applying $4.2 million of security deposits to rent, accelerating $0.8 million of existing concessions and deferring $3.6 million of base rent, typically for one to two months. Management said these concessions did not materially affect reported results, based on its collectability assessments. Deferred repayments were generally scheduled to begin in Q3 or Q4 2020.
- Management reported leasing spreads and leasing volume at pre-pandemic levels through Q2 and described increased e-commerce-oriented demand, but said the pandemic’s longer-term effects and future rent collections remain uncertain. The filing provides no formal full-year earnings or revenue guidance.
- Key exposures include tenant nonpayment, lease nonrenewals, local commercial-eviction and rent-deferral measures, possible economic deterioration, and construction delays or cost increases. All properties are concentrated in Southern California. Wholesale trade, manufacturing, warehousing, retail trade and transportation services represented 22.7%, 17.8%, 16.8%, 9.0% and 6.5% of ABR, respectively.
- Development and repositioning: the company estimated $106.1 million of capital needed through Q1 2023 to complete projects and warned that COVID-related construction disruptions could affect timing and cost. The West 228th Street environmental remediation liability was $0.6 million, with a matching $0.6 million indemnification asset; management did not expect a material impact. No material adverse legal proceedings or property impairment charges were reported.
- Interest-rate swaps had a $22.9 million liability at June 30, and the company estimated a further $8.3 million would be reclassified from accumulated other comprehensive loss into interest expense over the next 12 months. It also disclosed that a 50-basis-point LIBOR increase would raise annual interest expense by about $0.3 million on variable-rate debt.
Other notable items
- The February 2020 credit-facility amendment increased the unsecured revolving commitment to $500 million and extended its maturity to February 2024, with two six-month extension options.
- Three acquisitions totaling approximately $68.7 million were completed after quarter-end, on July 1 and July 17. The board declared a quarterly common dividend of $0.215 per share, payable October 15, 2020.
- The company announced Laura Clark’s appointment as CFO effective September 1, 2020, succeeding Adeel Khan.
Important facts for investors to verify
- Subsequent rent collections, repayment of deferred rent, and whether rent-relief requests or government restrictions expand or persist.
- Whether leasing demand, occupancy and rent spreads remain strong, especially as 2020–2021 leases expire and development projects enter lease-up.
- Actual project spending and completion timing versus the $106.1 million estimate, and the funding mix for acquisitions and development.
- Debt maturities, covenant headroom, credit ratings and the timing and earnings impact of swap-related interest expense.
- How much of reported growth reflects acquisitions versus same-property operations, and the effect of share issuance on per-share results.