Rexford Industrial Realty, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request metadata says “2021 Q4,” this is an annual filing, and the principal comparisons below are full-year 2021 versus full-year 2020.
Business context
Rexford is a self-managed REIT focused on owning, leasing, acquiring and redeveloping industrial properties in Southern California infill markets. At year-end, its consolidated portfolio comprised 296 properties and approximately 36.9 million rentable square feet; it also managed 20 additional properties totaling approximately 1.0 million square feet.
Financial and operating performance
| Metric | 2021 | Change versus 2020 |
|---|---|---|
| Total revenue | $452.2 million | Up 37.0% |
| Rental income | $451.7 million | Up 37.1%; same-property rental income rose 8.3% |
| Net income | $136.2 million | Up 68.4% |
| Net income attributable to common stockholders | $111.8 million; $0.80 per diluted share | Up 82.2%; diluted EPS was $0.51 in 2020 |
| Company share of Core FFO | $230.3 million | Up 44.0% |
| NOI | $344.0 million | Up 37.8% |
| Cash NOI | $307.7 million | Up from $227.7 million |
| Cash provided by operating activities | $231.5 million | Up from $183.0 million |
NOI, Cash NOI and Core FFO are non-GAAP supplemental measures; the filing cautions that they are not substitutes for GAAP results or measures of liquidity. Total-portfolio revenue and NOI growth reflect substantial acquisitions as well as operating performance. Same-property weighted average occupancy was 98.6% in 2021 versus 97.9% in 2020; year-end same-property occupancy was 99.1%.
Year-end portfolio occupancy was 96.3% including repositioning and redevelopment space; stabilized portfolio occupancy excluding such space was 98.9%. The filing also reports 96.7% leased, a separate measure. New and renewal leases signed in 2021 covered 7.0 million square feet, with reported cash leasing spreads of 28.8% overall. The retention rate was 74.4%.
Liquidity, debt and capital allocation
- At December 31, 2021, cash and cash equivalents were $44.0 million. Principal debt was $1.413 billion (balance-sheet carrying value: $1.400 billion), with a weighted average interest rate of approximately 2.85% and average term to maturity of 7.7 years.
- Approximately 96% of debt was fixed-rate or effectively fixed through swaps. Net debt to total combined market capitalization was 9.1%. The company reported compliance with all debt covenants at year-end.
- The $700 million unsecured revolving facility had no borrowings at year-end. At the filing date, Rexford reported $175 million drawn and $525 million available; these are different measurement dates. The facility matures in February 2024, with two six-month extension options.
- 2021 cash flows were $231.5 million provided by operations, $1.913 billion used in investing and $1.548 billion provided by financing. Capital expenditures were $91.0 million, including $80.5 million of non-recurring expenditures.
- Rexford acquired 53 properties totaling 5.7 million square feet for an aggregate contractual purchase price of $1.9 billion. It sold five properties for $59.3 million gross proceeds and $56.6 million net cash proceeds, recording a $33.9 million gain.
- The company issued 28.5 million common shares in 2021 for approximately $1.6 billion in net proceeds, and redeemed all Series A preferred shares for approximately $90.7 million including accrued dividends. It also issued $400 million of 2.150% senior notes due 2031.
- Common dividends were $0.96 per share in 2021 versus $0.86 in 2020. In February 2022, the board declared a quarterly common dividend of $0.315 per share.
Changes, outlook and notable items
Growth was supported by acquisitions, higher same-property rental rates and occupancy, and strong leasing demand. Same-property rental income increased 8.3%; reported total rental income rose 37.1%, partly due to acquisitions. Common shares outstanding increased from 131.4 million at year-end 2020 to 160.5 million at year-end 2021, reflecting equity issuance. Interest expense rose 30.1% to $40.1 million, while general and administrative expense rose 33.1% to $49.0 million.
Management described Southern California infill industrial markets as supply-constrained, with strong tenant demand and historically low vacancies, and expected market rents and leasing conditions to remain favorable into 2022. It anticipated positive 2022 renewal rates and leasing spreads, but provided no specific earnings or FFO guidance in the supplied filing text. At filing, six subsequent acquisitions totaling $183.0 million had closed, and more than $450 million of acquisitions were under contract or letter of intent, with no assurance they would be completed.
Eleven properties were under repositioning or redevelopment at year-end, with 17 additional projects in the pipeline. Rexford estimated approximately $330.6 million of capital would be required over 2022–2024 for the identified projects. Construction timing and costs could be affected by permitting, supply, labor and pandemic-related disruptions. It capitalized $4.5 million of interest and $2.2 million of insurance and real estate tax costs on projects in 2021.
COVID-19 rent deferrals totaled $4.6 million in 2020; no new base-rent deferral agreements were entered into in 2021. By year-end 2021, approximately $4.3 million, or 98%, of payments due had been collected. Los Angeles County eviction restrictions and rent-deferral rights outside the City of Los Angeles expired January 31, 2022; some local restrictions remained tied to the end of the local emergency.
- Key risks: geographic and sector concentration in Southern California industrial real estate; tenant credit and lease rollover risk; 13.1% and 13.8% of portfolio square footage scheduled to expire in 2022 and 2023, respectively; acquisition and redevelopment execution; rising interest rates, inflation and capital-market access; and REIT qualification and debt-covenant requirements.
- Earthquake exposure is material: properties are concentrated in a seismically active region, and earthquake insurance has significant deductibles and exclusions. The company does not generally insure against wildfire losses.
- Other notable items include a $1.0 million impairment of an office lease right-of-use asset related to a sublease, a $0.5 million loss on extinguishment of debt, and the $3.3 million non-cash charge to common-stockholder earnings associated with redemption of Series A preferred stock issuance costs.
- The company reported no legal proceedings expected to have a material adverse effect. The auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Reconcile the reported 96.3% occupancy, 96.7% leased rate and 98.9% stabilized occupancy, including how repositioning space and uncommenced leases are treated.
- Assess the sustainability of same-property rent and occupancy gains, leasing spreads, retention and the sizable 2022–2023 lease expirations.
- Verify year-end liquidity against the filing-date $175 million revolver borrowing and review subsequent acquisition commitments and equity issuance capacity.
- Track the $330.6 million redevelopment/repositioning capital estimate against project schedules, budgets, pre-leasing and eventual stabilization.
- Review acquisition valuation assumptions and purchase-price allocations; the auditor identified this as a critical audit matter involving significant estimates.
- Evaluate Southern California concentration, earthquake insurance deductibles, uninsured wildfire exposure, tenant credit quality and any remaining local COVID-19 rent restrictions.
- Confirm the company’s ongoing covenant compliance, debt maturities, interest-rate hedging and intended allocation of the 2031 notes’ proceeds to eligible green projects.