Rexford Industrial Realty, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. The filing covers the three and six months ended June 30, 2022. Rexford is a REIT focused on owning, operating, acquiring and redeveloping industrial properties in Southern California infill markets. At quarter-end, its portfolio comprised 330 properties and approximately 39.4 million rentable square feet.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Total revenue | $149.1 million | $104.4 million | +42.9% |
| Rental income | $149.0 million | $104.2 million | +42.9% |
| Net income | $40.9 million | $26.0 million | +57.1% |
| Net income attributable to common stockholders | $36.1 million | $20.6 million | +75.7% |
| Diluted EPS | $0.22 | $0.15 | +46.7% |
| NOI (non-GAAP) | $113.6 million | $79.7 million | +42.5% |
| Core FFO attributable to common stockholders (non-GAAP) | $81.7 million | $52.8 million | +54.7% |
Q2 NOI was approximately 76.2% of total revenue. Revenue and NOI growth reflect acquisitions as well as stronger same-property operations; same-property rental income rose 8.0% and same-property occupancy at quarter-end was 98.9%, compared with 98.4% a year earlier. Total portfolio occupancy was 95.2%, including space undergoing repositioning or redevelopment. The company reported six-month common-stockholder net income of $80.0 million, up 76.0%, and Core FFO of $158.3 million, up 56.5%.
Cash flow and investment. For the six months ended June 30, operating cash flow was $162.9 million, versus $101.7 million in 2021. Investing used $1.05 billion, principally for $992.5 million of real estate acquisitions and $55.2 million of capital expenditures. Financing provided $877.6 million, including net common-stock issuance proceeds of $724.8 million and substantial borrowing activity. Cash and cash equivalents were $34.3 million at quarter-end.
Debt and liquidity. Principal debt was $1.674 billion at June 30, including $1.550 billion unsecured and $123.9 million secured. Weighted-average interest rate was 2.74%, average remaining term was 6.8 years, and 29% of debt was variable-rate. The company had $125 million drawn on its $1.0 billion revolving facility, leaving $875 million available at quarter-end; it reported compliance with debt covenants. After quarter-end, it added a $400 million term loan and drew further on the revolver; at the filing date, revolver borrowings were $450 million and remaining availability was $550 million.
Material changes and notable activity
- Acquired 35 properties during the first half for an aggregate contractual purchase price of approximately $1.057 billion, totaling 2.87 million square feet. Six additional acquisitions totaling $678.9 million closed after quarter-end.
- Issued 10.37 million common shares in the first half through forward equity settlements, generating $725.4 million in net proceeds. At June 30, $552.1 million of forward proceeds remained to be settled, and approximately $536.5 million remained available under the current ATM program.
- Amended the credit agreement in May: established a $300 million term loan due 2027 and increased revolving capacity from $700 million to $1.0 billion. Proceeds helped repay a $150 million term loan and refinance other borrowings. The company terminated the related interest-rate swap and recorded a $0.9 million debt-extinguishment loss.
- Same-property leasing spreads for the first half were 77.7% on a GAAP basis and 59.5% on a cash basis across 195 new and renewal leases totaling 2.3 million square feet. Management reported strong tenant demand and very low market vacancy.
Outlook, commentary and risks
- The filing provides no specific full-year earnings or revenue guidance. Management said it expected positive market conditions, continued rent growth and positive renewal rates and leasing spreads for the remainder of 2022, while noting there is no assurance those trends will continue.
- Management expects approximately $384.7 million of capital over the next three years to complete current and planned repositioning and redevelopment projects. It warned inflation and supply-chain constraints have increased construction costs and delayed projects, potentially reducing yields and future earnings.
- Management noted persistent inflation could raise operating costs, capital expenditures and variable-rate borrowing costs. A 50-basis-point increase in benchmark rates was estimated to raise annual interest expense by approximately $2.4 million, before any mitigating actions.
- Other identified risks include tenant defaults or non-renewals, acquisition and redevelopment execution, market and property-value changes, refinancing and credit-rating risks, natural disasters, environmental liabilities, and potential climate-related costs. All properties are concentrated in Southern California. No legal proceeding was identified as reasonably expected to have a material adverse effect.
- Commitments included $77.7 million for tenant improvements and construction work. The company reported no property impairment charges for the periods presented.
Important facts for investors to verify
- Separate acquisition-driven growth from same-property performance; review occupancy, lease expirations and leasing spreads, including the 71.0% first-half retention rate.
- Track post-quarter acquisitions, the $400 million term loan, subsequent revolver usage and remaining liquidity against ongoing acquisition and redevelopment spending.
- Assess exposure to floating rates, construction-cost inflation and delays, and the funding and expected returns of the redevelopment pipeline.
- Review forward equity settlement timing and potential dilution, alongside the company’s dividend requirements and financing needs.
- Compare GAAP results with Core FFO and NOI, which are non-GAAP measures and do not represent cash available for dividends or capital spending.