Rexford Industrial Realty, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Rexford is an industrial REIT focused on Southern California infill markets. At quarter-end, its portfolio comprised 422 properties and approximately 49.2 million rentable square feet. Dollar figures below are in millions unless stated otherwise.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $214.1 | $186.2 | +15.0% |
| Rental income | $211.0 | $185.2 | +13.9% |
| Net income | $64.3 | $63.6 | +1.1% |
| Net income attributable to common stockholders | $58.6 | $57.9 | +1.3% |
| Diluted EPS | $0.27 | $0.30 | Down 10.0% |
| Core FFO attributable to common stockholders | $123.5 | $102.7 | +20.3% |
| Net operating income (NOI) | $163.5 | $142.3 | +14.9% |
| Cash NOI | $148.5 | $126.4 | +17.5% |
| Cash provided by operating activities | $133.8 | $119.5 | +$14.3 |
NOI was approximately 76.4% of total revenue in both periods. NOI, Cash NOI and Core FFO are non-GAAP measures; the company cautions that they are supplemental and not substitutes for GAAP results or cash flow measures.
- Same-property performance: Rental income rose 5.5%; average occupancy was 96.8%, versus 97.0% a year earlier, and quarter-end occupancy was 96.4%, versus 97.0%.
- Portfolio occupancy: Total portfolio occupancy was 92.8%; stabilized portfolio occupancy, excluding repositioning/redevelopment space, was 96.9%.
- Leasing: Rexford executed 114 new and renewal leases covering 3.2 million square feet. Reported spreads were 17.3% GAAP and 13.2% cash. Excluding a 1.1-million-square-foot extension at current in-place rent, renewal spreads were 56.8% GAAP and 34.4% cash; the company’s combined new-and-renewal figures excluding that extension were 53.0% GAAP and 33.6% cash. The extension affects comparability.
Balance sheet, debt and liquidity
- Total assets were $12.38 billion; total liabilities were $3.97 billion; and total equity was $8.42 billion at March 31, 2024.
- Cash and cash equivalents were $337.0 million, up from $33.4 million at year-end. Net cash from operations was $133.8 million; investing activities used $1.154 billion, primarily for acquisitions and capital expenditures; financing activities provided $1.324 billion.
- Debt principal was $3.389 billion ($3.349 billion net of unamortized premiums, discounts and issuance costs). All debt was fixed-rate either contractually or through swaps; the weighted effective interest rate was 3.827%. Secured debt was $114.1 million and unsecured debt $3.275 billion. Net debt to total combined market capitalization was approximately 20.9%.
- The $1.0 billion revolving credit facility was undrawn, leaving $1.0 billion available. Management reported compliance with all quarterly debt covenants. Credit ratings were BBB+ from S&P and Fitch and Baa2 from Moody’s, all with stable outlooks.
- Scheduled debt maturities included $469.5 million for the remainder of 2024, excluding extension options. The $400 million term loan due July 2024 had a one-year extension requested in March 2024; the company also cited extension options for the $60 million term loan due October 2024.
- Cash dividends declared for common stock were $0.4175 per share for the next quarter, payable July 15, 2024. Q1 common dividends paid were $80.7 million.
Material changes and significant transactions
- Q1 acquisitions totaled approximately $1.1 billion: 49 properties with 3.24 million rentable square feet, including a 48-property Blackstone portfolio. Net cash paid for real estate acquisitions was $1.068 billion.
- In March, Rexford issued $575 million of 4.375% exchangeable notes due 2027 and $575 million of 4.125% notes due 2029, receiving approximately $1.126 billion net. The initial exchange price is approximately $63.64 per share, a 30% premium to the referenced March 26 share price.
- Common shares outstanding increased to 217.8 million from 212.3 million at year-end. The company settled previously outstanding forward equity agreements for $290.2 million net proceeds. A separate March forward offering covered 17.18 million shares; it had not been settled at quarter-end. The company estimated $835.4 million of proceeds upon settlement at March 31, and $837.3 million as of the filing date.
- Revenue growth reflected acquisitions and higher rental rates; same-property rental income increased 5.5%. Higher property expenses, depreciation, G&A and interest costs partly offset growth. Q1 2023 included a $12.1 million gain on a property sale, while Q1 2024 had no property-sale gain; this materially affects reported net-income comparisons.
- Interest income increased to $3.0 million, mainly due to a $125 million loan originated in October 2023. The loan bears 7.50% interest, matures in 2028, and had an immaterial estimated credit-loss allowance at quarter-end.
Outlook, risks and contingencies
- No quantified earnings or FFO guidance was provided in the supplied filing text. Management expects Southern California market conditions to remain healthy through the remainder of 2024, while noting near-term volatility and normalized, slower market rent growth after substantial pandemic-era increases.
- Management identified a pipeline of nine additional repositioning/redevelopment projects and estimated approximately $405.7 million of capital needs over the next three years for identified projects. Construction inflation, labor and materials costs, permitting delays and project timing could raise costs, delay leasing or lower expected yields.
- Management cited interest-rate uncertainty, inflation, tenant defaults or non-renewals, changing vacancy and rental rates, refinancing conditions, acquisition execution, natural disasters, environmental exposure and maintaining investment-grade ratings and REIT status as risks. All properties are in Southern California, creating geographic concentration.
- At March 31, commitments for tenant improvements and construction work were approximately $232.8 million. The filing reported no legal proceedings expected to have a material adverse effect and no known environmental liabilities expected to materially affect financial condition, results or cash flows.
- Subsequent events included an April acquisition for $26.7 million, a $10.0 million property sale, and conversion of 593,960 preferred partnership units into OP Units.
Important facts for investors to verify
- How the large Q1 acquisition program performs, including integration, occupancy and realized returns on the Blackstone properties.
- Whether leasing spreads and retention remain strong as rent growth normalizes; assess reported spreads both including and excluding the large lease extension.
- Execution, budgets and lease-up timing for the repositioning/redevelopment pipeline, including the estimated $405.7 million of planned capital needs.
- Debt maturity management, particularly the requested term-loan extension, and the eventual settlement proceeds and share dilution from the March forward equity agreement.
- Whether operating cash flow and recurring cash generation support dividends and investment spending; Core FFO and NOI are non-GAAP measures and do not equal funds available for dividends.
- Tenant receivable collectability: the company recorded a $1.7 million net reduction to rental income from collectability assessments in Q1 2024, versus $0.3 million a year earlier.