Rexford Industrial Realty, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited consolidated results; dollar amounts below are in millions unless stated otherwise. Rexford is an industrial REIT focused on Southern California infill markets. At quarter-end, its portfolio comprised 223 properties and approximately 27.4 million rentable square feet, plus 19 managed properties.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $77.7 | $60.4 | +28.7% |
| Rental income | $77.5 | $59.6 | +30.0% |
| Net income | $15.3 | $10.7 | +42.5% |
| Net income attributable to common stockholders | $10.8 | $8.0 | +$2.8 |
| Basic and diluted EPS | $0.09 | $0.08 | +$0.01 |
| Cash from operating activities | $46.5 | $36.2 | +$10.3 |
| Net operating income (NOI; non-GAAP) | $59.4 | $45.8 | +29.7% |
| Cash NOI (non-GAAP) | $55.3 | $42.0 | +31.8% |
| FFO attributable to common stockholders (non-GAAP) | $37.5 | $29.4 | +27.7% |
Total portfolio growth largely reflects acquisitions; stabilized same-property rental income increased 3.7%, and stabilized same-property NOI was approximately $24.8 million versus $23.0 million, up 7.7%. Q1 leasing spreads were 33.5% GAAP and 22.1% cash on new leases, and 37.2% GAAP and 24.8% cash on renewals. Stabilized portfolio occupancy was 97.4% at March 31, 2020; same-property occupancy was 98.0%, compared with 98.1% a year earlier.
Cash, debt and balance sheet: Cash and cash equivalents were $112.4 million at March 31, up from $78.9 million at year-end. Total assets were $3.87 billion; total liabilities $1.09 billion; total equity $2.78 billion. Debt principal was $905.6 million, versus $861.0 million at December 31, 2019. Weighted-average debt rate was 3.52%, with 5.3 years average term to maturity; 94% of debt was fixed-rate or hedged. Net debt to total combined market capitalization was approximately 13.1%. The $500 million revolving facility was undrawn, providing $500 million availability. The company reported covenant compliance.
Investing cash outflow was $63.1 million, including $46.5 million for real estate acquisitions and $15.6 million for capital expenditures. Financing cash inflow was $50.3 million, including $79.4 million net proceeds from common stock issuance. The quarterly common dividend was $0.215 per share. Interest-rate swap liabilities rose to $22.7 million from $8.5 million at year-end, contributing to a $15.0 million cash-flow-hedge loss in comprehensive income.
Material changes and notable transactions
- On March 5, Rexford acquired 10 Southern California industrial properties totaling 863,484 square feet for a contractual price of $203.2 million, including assumed mortgage debt. Consideration included $56.2 million cash, $63.3 million in OP units, $40.8 million in 4.00% convertible preferred units, and approximately $44.7 million of assumed debt principal.
- In February, the company amended its credit facility: the revolving commitment increased from $350 million to $500 million and maturity extended to February 2024, with two six-month extension options.
- Under its ATM program, Rexford issued 2.21 million common shares at a weighted average $36.62, raising $79.6 million net. The share count and weighted-average shares outstanding increased year over year.
- Property acquisitions and related growth drove much of the increase in total rental revenue and expenses. On the stabilized same-property portfolio, rental income grew 3.7%; property expenses rose 4.0%.
Outlook, COVID-19, risks and contingencies
The filing provides no quantified earnings or FFO guidance. Management said COVID-19 could materially affect results in Q2 and later 2020, but the impact could not be reasonably estimated. Q1 had no significant reported operating disruption, so the quarter’s results do not reflect the full pandemic effects.
- As of May 3, Rexford had collected 97.9% of March contractual rents. For April, it had collected 82.3%; collections or rent-relief agreements covered 95.0% of contractual rents.
- The company had executed rent-relief agreements with 206 tenants, representing 20.1% of ABR ($51.5 million). Agreements involved applying $3.5 million of security deposits, accelerating $0.8 million of existing concessions, and deferring $3.3 million of base rent. Management reported no rent forgiveness or free rent. Another 114 tenant requests remained unresolved.
- California and local-government eviction moratoria allowed eligible tenants to defer rent. The timing and repayment of deferred rent, future collections, tenant solvency, leasing demand and occupancy remain uncertain.
- All properties are concentrated in Southern California. Tenant industries included wholesale trade (22.8% of ABR), warehousing (17.5%), manufacturing (17.0%), retail trade (8.9%) and transportation services (6.6%). Pandemic-related closures, supply-chain disruptions or tenant distress could affect rent and property performance.
- Construction delays and cost increases could affect repositioning and development. Estimated capital needed to complete projects through 2022 was $101.5 million; tenant-improvement and construction commitments were $38.9 million at quarter-end.
- Debt maturities include $101.6 million in 2022 and $289.2 million in 2023. Interest-rate swaps carry counterparty and valuation risks; the company estimated another $7.5 million would be reclassified from accumulated other comprehensive loss to interest expense over the next 12 months.
- There were no Q1 property impairment charges, no material legal proceedings identified, and no off-balance-sheet arrangements. A $0.6 million environmental remediation liability and matching indemnification asset remained recorded.
- After quarter-end, Rexford acquired a $0.9 million land parcel and a property for $15.5 million. The board declared the Q2 common dividend of $0.215 per share.
Key facts for investors to verify
- Subsequent rent collections, rent-relief requests and actual repayment of deferred rent, including any change in tenant credit quality or delinquencies.
- Whether same-property occupancy, rental rates and leasing spreads hold up as leases expire; 19.8% of portfolio square footage was scheduled to expire in 2021.
- Progress, costs, leasing and completion timing for development and repositioning projects, particularly given the $101.5 million estimated remaining capital requirement.
- Debt maturities, covenant headroom, availability and terms of financing, and maintenance of the BBB Fitch rating during economic uncertainty.
- Share-count dilution and the returns generated from Q1 acquisitions and ATM proceeds; assess non-GAAP FFO and NOI alongside GAAP income and cash flow.