Rexford Industrial Realty, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Rexford is a REIT focused on owning, operating, acquiring and developing industrial properties in Southern California infill markets. At quarter-end, its portfolio included 231 properties totaling approximately 27.7 million rentable square feet, plus 20 managed properties.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $83.9 million | $68.1 million | $241.5 million | $192.8 million |
| Net income | $31.2 million | $12.9 million | $62.7 million | $39.6 million |
| Net income attributable to common stockholders | $25.9 million | $9.7 million | $48.1 million | $30.6 million |
| Diluted earnings per share | $0.21 | $0.09 | $0.40 | $0.29 |
| FFO attributable to common stockholders | $40.5 million | $33.7 million | $116.8 million | $95.2 million |
| Net operating income (NOI) | $62.9 million | $50.9 million | $183.2 million | $145.1 million |
- Q3 rental income grew 24.8% year over year to $83.6 million; nine-month rental income rose 26.6% to $240.9 million. Management attributed much of total-portfolio growth to acquisitions. Stabilized same-property rental income increased 5.0% in Q3 and 4.1% year to date.
- Reported net income included $13.7 million of gains on real estate sales in Q3 2020, versus $0.9 million in Q3 2019. Excluding property-sale gains, FFO attributable to common stockholders increased year over year in both periods.
- Nine-month operating cash flow was $146.6 million, compared with $107.6 million. Investing activities used $222.1 million, versus $715.6 million, reflecting substantially lower acquisition spending than in 2019. Financing activities provided $282.6 million, compared with $624.9 million.
- At September 30, cash and cash equivalents were $243.6 million, with a further $42.4 million restricted cash, primarily sale proceeds held for potential 1031 exchanges. Total assets were $4.17 billion and total equity was $3.07 billion.
- Debt principal was $908.0 million ($906.6 million net carrying value). The weighted average effective rate was 3.47%, average remaining maturity was 4.8 years, and 94% of debt was effectively fixed-rate. Net debt to total combined market capitalization was approximately 9.7%.
- The $500 million unsecured revolving facility was undrawn, leaving $500 million available. The company reported compliance with quarterly debt covenants. The 2020 filing does not provide a numerical debt-to-assets ratio.
Changes, operations and capital allocation
- Year-to-date acquisitions comprised 22 properties and one small land parcel, totaling approximately 1.7 million square feet, for gross purchase prices of about $374.6 million. The company also sold three properties for $44.2 million gross proceeds and $42.3 million net proceeds.
- Q3 portfolio occupancy was 97.2%, or 97.9% excluding space in repositioning; stabilized same-property occupancy was 98.4% at quarter-end. Same-property weighted-average occupancy was 98.1% in both Q3 2020 and Q3 2019.
- For the first nine months, new leases produced GAAP leasing spreads of 37.4% and cash spreads of 22.7%; renewal spreads were 30.4% and 19.6%, respectively. Management said leasing activity and demand remained strong through Q3, including demand from e-commerce-oriented tenants.
- Q3 common-stock issuance and other equity activity contributed to an increase in shares outstanding. The company raised approximately $285.1 million net in a second-quarter underwritten offering and $89.6 million net through its at-the-market program during the first nine months.
- The quarterly common dividend was $0.215 per share. The board declared the same amount for Q4 2020, payable January 15, 2021.
Outlook, risks and unusual items
- No formal full-year earnings or FFO guidance is provided. Management expected positive renewal rates and leasing spreads in the remainder of 2020, but cautioned they might not match prior-period levels given COVID-19 uncertainty.
- Management estimated approximately $105.4 million of capital would be needed through Q1 2023 to complete repositioning and development projects. Project schedules and costs could be affected by pandemic-related construction delays, permitting and materials costs.
- At October 22, 2020, the company had approximately $685.5 million of acquisitions under contract or letter of intent; completion was not assured. It expected to use a mix of cash, operating cash flow, revolver capacity, dispositions and equity financing for capital needs.
- COVID-19 and local eviction moratoriums and rent-deferral rules were significant uncertainties. By October 22, the company had executed rent-relief agreements with 270 tenants; 118 tenants had received $4.6 million of base-rent deferrals, equal to 1.7% of September 30 annualized base rent. Q3 contractual billings collection was 96.8% before relief and 98.1% after adjusting for relief, as of October 22. Collections are not assurance of future payment or recovery of deferred rent.
- All properties are concentrated in Southern California, exposing results to regional economic conditions, tenant credit, rent collection and local policy. Other risks include lease expirations, acquisition and development execution, interest rates, refinancing, environmental matters and maintaining REIT and investment-grade status.
- Unusual items include the $13.7 million property-sale gains, a $20.9 million interest-rate-swap liability, and a $13.1 million nine-month other comprehensive loss primarily associated with cash-flow hedges. Management estimated another $8.2 million would be reclassified from accumulated other comprehensive loss into interest expense over the following 12 months.
- The company reported no material legal proceedings, no property impairment charges, and no off-balance-sheet arrangements. It was in compliance with debt covenants and stated disclosure controls were effective.
Investor verification points
- Track rent collections, tenant deferrals and repayments, and any changes to local eviction or rent-deferral rules.
- Separate recurring operating performance from acquisition contributions and real-estate disposition gains; review FFO alongside GAAP results and capital needs.
- Monitor occupancy, lease expirations—18.7% of owned square footage was scheduled to expire in 2021—and whether leasing spreads persist.
- Verify acquisition pipeline conversion, 1031 exchange timing, development budgets and schedules, and funding needs against available liquidity.
- Review debt maturities, covenant headroom, swap exposure and the potential effect of refinancing or rating changes.