Rexford Industrial Realty, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. Rexford is a REIT focused on owning, operating, acquiring and redeveloping industrial properties in Southern California infill markets. This unaudited filing covers the three and nine months ended September 30, 2022. The portfolio comprised 345 properties and approximately 41.7 million rentable square feet at quarter-end.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $162.7m | $115.4m | $452.6m | $319.5m |
| Net income | $41.6m | $40.2m | $131.4m | $96.9m |
| Net income attributable to common stockholders | $36.8m | $31.5m | $116.8m | $77.0m |
| Diluted EPS | $0.21 | $0.23 | $0.70 | $0.57 |
| Core FFO attributable to common stockholders | $86.1m | $59.6m | $244.4m | $160.7m |
| NOI | $123.0m | $87.8m | $343.7m | $243.5m |
Revenue growth principally reflected acquisitions. Same-property rental income increased 7.6% for Q3 and 8.2% year to date. Q3 NOI growth was 40.1%; the reported nine-month increase was 41.1%. Same-property occupancy was 98.4% at quarter-end, versus 98.8% a year earlier; total portfolio occupancy was 94.5%, including space undergoing repositioning or redevelopment. Management reported nine-month leasing spreads of 82.2% on a GAAP basis and 60.9% on a cash basis across new and renewal leases.
Q3 net income increased only 3.6% despite higher revenue, in part because Q3 2021 included a $13.7m property-sale gain. Diluted EPS declined from $0.23 to $0.21 as the weighted-average diluted share count increased to 172.8m from 139.6m. For the first nine months, net income attributable to common stockholders rose 51.6% and diluted EPS increased from $0.57 to $0.70. These comparisons also reflect higher depreciation, operating costs and interest expense. NOI and Core FFO are non-GAAP measures.
Cash flow and balance sheet: Nine-month operating cash flow was $260.9m, compared with $179.9m; investing cash outflow was $2.06bn, primarily for acquisitions; and financing cash inflow was $1.79bn. Cash and cash equivalents were $37.1m at September 30. Principal debt was $1.95bn ($1.93bn carrying value); total equity was $6.55bn. The company had no revolver borrowings and $1.0bn of revolving capacity available. Reported weighted-average debt interest rate was 3.22%, with an average term to maturity of 5.8 years. Debt was 77% fixed-rate, including $300m of variable-rate debt hedged with swaps.
Material changes and management commentary
- The company acquired properties with a reported aggregate contractual purchase price of approximately $2.03bn during the nine months; including post-quarter acquisitions, management described 51 properties acquired year to date for about $2.1bn. It also reported $108.8m of tenant-improvement and construction commitments.
- Common equity issuance provided approximately $1.4bn of net proceeds during the nine months. At quarter-end, 2.90m forward-sale shares remained to be settled, representing about $188.6m of expected net proceeds; approximately $201m remained available under the current ATM program.
- Debt rose from $1.41bn at December 31, 2021 to $1.95bn at September 30, 2022. The company amended its credit facility, increased revolving capacity to $1.0bn, and added $300m and $400m term loans. It repaid a $150m term loan and paid off secured debt on one property. Two rating agencies upgraded its credit ratings; management reported compliance with all debt covenants.
- Management described Southern California infill industrial demand and market occupancy as strong, with constrained supply supporting rent growth. It expected positive renewal rates and leasing spreads through the remainder of 2022, but provided no formal earnings or FFO guidance in the supplied filing text.
- As of quarter-end, 16 properties were under repositioning or redevelopment, one was in lease-up, and eight projects were in the near-term pipeline. Management estimated approximately $359m of capital would be needed over three years to complete these projects. Inflation, supply-chain constraints, permitting delays and higher construction costs could delay projects or reduce returns.
Risks, contingencies and unusual items
- Management cited persistent inflation, rising labor and property-insurance costs, higher interest rates, construction-cost escalation and possible difficulty refinancing or financing acquisitions. Contractual rent increases and tenant expense reimbursements may not fully offset inflation, particularly when inflation exceeds lease escalators.
- Approximately $457.5m of debt was variable-rate before considering hedges. Management estimated a 50-basis-point rate increase would raise annual interest expense by about $2.3m, based on quarter-end debt and assumptions disclosed in the filing.
- All properties are in Southern California, exposing the portfolio to regional economic conditions and earthquakes, wildfires, floods, climate-related costs and regulatory changes. No tenant represented more than 5% of nine-month rental income.
- The company estimated $62.8m of principal due within 12 months and $413.4m of contractual maturities in 2024, including the $400m term loan. It was in compliance with covenants at quarter-end.
- No legal proceeding was identified as reasonably expected to have a material adverse effect, and the filing reported no material environmental liability known to the company. These disclosures do not eliminate uncertainty about future claims or remediation needs.
- Q3 2021 included a $13.7m sale gain; nine-month 2022 included an $8.5m gain on a property sale and $0.9m of debt-extinguishment losses. No property impairment charges were recorded in the periods presented.
Investor verification priorities
- Confirm acquisition economics and integration: the scale of 2022 acquisitions, their occupancy and contribution to cash NOI, and whether purchase assumptions remain achievable.
- Track same-property rent growth, occupancy, renewal spreads and retention, while distinguishing stabilized assets from space temporarily vacant for redevelopment.
- Assess dilution and funding: shares already issued, remaining forward settlements and ATM capacity, and the resulting effect on per-share FFO and dividends.
- Review debt maturities, floating-rate exposure, hedge effectiveness, available revolver capacity and covenant headroom, particularly for the 2024 term-loan maturity.
- Monitor the $359m redevelopment estimate and construction commitments against actual costs, schedules, pre-leasing and expected yields.
- Compare cash generation and recurring capital needs with distributions. The board declared a $0.315-per-share common dividend for Q4 2022, payable January 17, 2023.