Business context and reporting period
Rexford Industrial Realty, Inc. filed its Form 10-K for the fiscal year ended December 31, 2018. It is a self-managed REIT focused on acquiring, operating and repositioning industrial properties in Southern California infill markets. At year-end, its portfolio comprised 176 properties and approximately 21.3 million rentable square feet; portfolio occupancy was 95.4%. The filing also reports unaudited fourth-quarter results.
Financial and operating performance
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenue | $212.5 million | $161.4 million | +31.7% |
| Net income | $47.1 million | $41.7 million | +12.9% |
| Net income per diluted common share | $0.41 | $0.48 | Down |
| FFO | $109.9 million | $77.0 million | +42.8% |
| Cash from operating activities | $102.8 million | $76.7 million | +$26.1 million |
Rental revenue rose 30.4%, reflecting acquisitions, higher occupancy and rental rates; same-property rental revenue increased 9.0%. Total property NOI was $159.0 million, up from $118.3 million. NOI as a share of total rental revenue was approximately 75.5%, compared with 73.7% in 2017; NOI is a non-GAAP measure. Same-property weighted-average occupancy improved to 96.1% from 93.7%.
Fourth-quarter 2018 revenue was $57.0 million versus $45.9 million in fourth-quarter 2017. Net income was $15.2 million versus $14.1 million; diluted earnings per share were $0.13 versus $0.15.
Cash used in investing was $507.2 million and cash provided by financing was $578.2 million. Year-end cash and cash equivalents were $180.6 million, versus $6.6 million a year earlier. Capital expenditures totaled $51.1 million, including $45.5 million of non-recurring expenditures, primarily related to repositioning and portfolio growth.
Year-end notes payable were $757.4 million on the balance sheet ($761.1 million principal before unamortized costs and discounts), compared with $668.9 million carrying value in 2017. Weighted-average effective interest was approximately 3.44%, average debt maturity was 5.5 years, and 80% of debt was effectively fixed-rate. Net debt to total market capitalization was 15.8%. The $350 million revolving facility was undrawn, and the company reported covenant compliance.
Material changes versus the prior comparable period
- Completed 30 acquisitions totaling 3.1 million square feet for $492.9 million; disposed of properties for gross proceeds of $48.0 million and net proceeds of $45.2 million.
- Issued 18.2 million common shares through ATM programs, raising $565.6 million gross and $557.1 million net. Common shares outstanding rose from 78.5 million to 96.8 million.
- Dividend declared per common share increased to $0.64 for 2018 from $0.58 in 2017.
- Higher interest expense, up 25.8% to $25.4 million, reflected new borrowing, including a $150 million term loan. Lower gains on property sales—$17.2 million versus $29.6 million—partly tempered net-income growth.
- Same-property rental and reimbursement growth, along with acquisitions, supported higher revenue and FFO; the substantially larger share count contributed to lower per-share earnings.
Outlook, commentary, risks and unusual items
Management described Southern California infill industrial fundamentals as favorable, citing limited supply, strong tenant demand and low concessions. It expected potential rent growth and positive renewal spreads in 2019, while noting that future market conditions are uncertain. No formal earnings or FFO guidance is provided in the supplied filing text.
Seven properties were in repositioning or development and four were in lease-up at year-end. Management estimated approximately $43.2 million of capital would be required over the next ten quarters to complete identified projects, subject to cost and schedule changes. Three properties totaling $133.8 million were acquired after year-end; approximately $311.4 million of acquisitions were under contract or letter of intent as of the filing date, with no assurance they would close.
Principal risks include concentration in Southern California and industrial real estate, earthquake and other natural-disaster exposure, tenant credit and lease-renewal risk, near-term expirations (12.9% of portfolio area in 2019 and 19.6% in 2020), acquisition and redevelopment execution, interest rates and LIBOR transition, financing availability, environmental liabilities, and REIT qualification. Management disclosed a $1.0 million estimated remediation liability for the West 228th Street property, matched by a $1.0 million indemnification asset, and expected no material financial impact. The company reported no pending legal proceeding expected to have a material adverse effect. Management and the auditor concluded that internal controls over financial reporting were effective; the auditor gave an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether reported occupancy and leasing spreads translate into sustained same-property rent and cash-flow growth, especially as 2019–2021 leases expire.
- How much of 2018 revenue and FFO growth came from acquisitions versus same-property performance, and the effect of share issuance on per-share results.
- Actual costs, completion dates, lease-up and returns for the repositioning pipeline and the estimated $43.2 million remaining project spend.
- Debt maturity, interest-rate exposure, covenant headroom and funding needs for acquisitions, capital projects and distributions.
- Whether the post-year-end acquisitions and the $311.4 million pipeline closed on expected terms, and the potential impact of unresolved environmental or insurance exposures.