Rexford Industrial Realty, Inc. — Q1 2022 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2022, Rexford operated as an industrial-property REIT focused entirely on Southern California infill markets. Its portfolio comprised 312 properties and approximately 38.1 million rentable square feet at quarter-end.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $140.8 million | $99.8 million | +41.1% |
| Net income | $48.9 million | $30.6 million | +59.6% |
| Net income attributable to common stockholders | $43.9 million; $0.27 per diluted share | $24.9 million; $0.19 per diluted share | +76.3% in common earnings |
| Net operating income (NOI) | $107.2 million | $76.1 million | +40.9% |
| Core FFO attributable to common stockholders | $76.6 million | $48.4 million | +58.4% |
| Cash provided by operating activities | $91.6 million | $36.4 million | +$55.2 million |
- Rental income increased 41.1% to $140.6 million. Same-property rental income rose 9.0%, supported by higher rental rates and occupancy.
- Quarter-end total portfolio occupancy was 96.3%; same-property occupancy was 99.3%. The stabilized portfolio excluding repositioning space was 98.7% occupied.
- The company executed 89 new and renewal leases covering 0.9 million square feet; combined leasing spreads were 71.1% on a GAAP basis and 56.9% on a cash basis.
- Cash and cash equivalents were $48.8 million. Principal debt was $1.54 billion ($1.52 billion carrying value); 88% was fixed-rate or effectively fixed, at a weighted-average interest rate of 2.73% and average maturity of 7.0 years. Net debt was approximately $1.49 billion.
- At March 31, $125 million was drawn on the $700 million revolving facility, leaving $575 million available. At the April 25 filing date, the company reported $215 million drawn and $485 million available.
Material changes versus the prior comparable period
- Total revenue growth reflected acquisitions as well as stronger same-property performance. The company acquired 17 properties during the quarter for a gross contractual price of $457.7 million, adding 1.5 million square feet; it sold one property for $16.5 million.
- Same-property occupancy at quarter-end improved to 99.3% from 98.2% a year earlier. Same-property NOI increased, although property expenses rose 12.2%, primarily due to insurance, real estate taxes and allocated overhead.
- Operating cash flow increased substantially, but management attributed part of the increase to the timing of property-tax payments, with the second installment paid in April 2022. Investing cash use rose to $471.6 million, primarily reflecting property acquisitions and deposits.
- Financing cash flow included $305.7 million of net common-stock proceeds and $124.4 million of net borrowings. Common shares outstanding increased to 165.0 million from 160.5 million at year-end.
- Gains on real estate sales were $8.5 million, down from $10.9 million in Q1 2021. Interest expense was broadly flat at $9.7 million.
Outlook, commentary, risks and unusual items
- Management described Southern California industrial demand and supply conditions as strong and expected positive renewal rates and leasing spreads for the remainder of 2022. It provided no specific company-wide earnings or revenue guidance.
- Fourteen properties were under repositioning or redevelopment, with another 14 in the near-term pipeline. Management estimated approximately $364.6 million of project capital needs for 2022–2024 and noted that construction costs, supply-chain backlogs and delays could affect budgets, timing and leasing.
- More than $500 million of acquisitions were under contract or letter of intent as of the filing date; completion was not assured. The company also reported $82.8 million of tenant-improvement and construction commitments.
- Inflation could increase operating, capital and variable-rate borrowing costs. A 50-basis-point increase in LIBOR was estimated to raise annual interest expense by approximately $0.9 million, based on quarter-end variable-rate debt.
- Key disclosed risks include tenant defaults or non-renewals, weaker market conditions, acquisition execution, financing and credit-rating changes, and environmental or climate-related impacts. All properties are concentrated in Southern California; no tenant represented more than 5% of rental income.
- The company reported compliance with debt covenants, no property impairment charges, and no legal proceeding expected to have a material adverse effect. It added climate-related physical and regulatory risks to its risk disclosures.
- Quarterly common dividends of $0.315 per share were declared after quarter-end for payment July 15, 2022. The company also reported Baa3 (Stable) from Moody’s and BBB (Positive) from S&P and Fitch for specified debt.
Important facts for investors to verify
- Reconcile acquisition-driven growth with same-property results, and track occupancy, leasing spreads and lease expirations.
- Assess the cash-flow increase in light of the property-tax payment timing and the substantial acquisition and redevelopment outlays.
- Monitor post-quarter revolver borrowings, planned equity issuance, remaining ATM capacity and the terms and settlement of forward equity sales.
- Test the $364.6 million redevelopment/repositioning capital estimate against actual costs, schedules and lease-up progress.
- Review debt maturities, variable-rate exposure, covenant headroom and the company’s ability to maintain investment-grade ratings.
- Evaluate the sustainability of dividends against operating cash flow, capital needs and REIT distribution requirements; Core FFO and NOI are supplemental, non-GAAP measures and are not measures of cash available for dividends.