Rexford Industrial Realty, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2023. Rexford is an industrial-property REIT focused on Southern California infill markets. At quarter-end, its portfolio comprised 365 properties and approximately 44.2 million rentable square feet.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $195.8 million (+31.3%) | $149.1 million | $382.0 million (+31.8%) | $289.9 million |
| Net income | $56.9 million (+39.1%) | $40.9 million | $120.5 million (+34.2%) | $89.8 million |
| Net income attributable to common stockholders | $51.6 million | $36.1 million | $109.4 million (+36.8%) | $80.0 million |
| Diluted EPS | $0.26 | $0.22 | $0.55 | $0.49 |
| Core FFO attributable to common stockholders | $108.4 million | $81.7 million | $211.1 million (+33.3%) | $158.3 million |
| Net operating income (NOI) | $149.8 million | $113.6 million | $292.1 million (+32.3%) | $220.7 million |
| Cash NOI | $134.9 million | $99.0 million | $261.3 million | $194.2 million |
| Cash provided by operating activities | Not presented quarterly | Not presented quarterly | $202.7 million | $162.9 million |
NOI margin, calculated as NOI divided by revenue, was approximately 76.5% in Q2 2023 versus 76.2% in Q2 2022, and approximately 76.5% for the first six months versus 76.1%. These are calculated supplemental ratios, not company-reported GAAP margins.
At June 30, 2023, notes payable had a $2.25 billion principal balance and $2.23 billion carrying value. All debt was fixed-rate, including debt hedged with swaps; the weighted effective interest rate was 3.615%. Cash and cash equivalents were $136.3 million, and the undrawn revolver provided $1.0 billion of availability. Net debt was approximately 16.0% of total combined market capitalization. The company reported compliance with its debt covenants.
Material changes versus the prior comparable period
- Q2 total revenue rose 31.3%, while same-property rental income grew 6.7%; six-month same-property rental income grew 6.4%. Management attributed same-property growth primarily to higher rental rates on new and renewed leases. Total-portfolio growth also reflected acquisitions.
- Six-month operating cash flow increased $39.8 million, to $202.7 million, supported by acquired properties and higher same-property Cash NOI, partly offset by working-capital changes and higher cash interest paid.
- Q2 interest expense increased 69.0% to $17.2 million; six-month interest expense rose 55.6% to $30.9 million, mainly reflecting term borrowings and the 2023 notes issuance. Higher capitalized interest partly offset the increases.
- Common shares outstanding increased to 201.0 million from 189.1 million at year-end 2022, principally reflecting equity issuance and settlements of forward equity agreements.
- During the first half, the company acquired properties for an aggregate contractual price of $845.5 million (approximately $849.7 million including capitalized acquisition costs) and sold one property for $17.0 million, recording a $12.1 million gain.
Operations, outlook, risks and unusual items
- Portfolio occupancy was 94.0% at quarter-end, including repositioning space; stabilized portfolio occupancy excluding that space was 97.3%. Same-property ending occupancy was 98.1%, compared with 98.6% a year earlier.
- The company executed 251 new and renewal leases covering 3.9 million square feet during the first half. Reported leasing spreads were 87.4% on a GAAP basis and 66.3% on a cash basis. Six-month retention was 76.9%.
- Management characterized tenant demand and Southern California infill fundamentals as healthy, and expected market conditions to remain healthy through the rest of 2023. It expected positive renewal rates and leasing spreads for the remainder of the year. The filing provides no specific full-year earnings or FFO guidance.
- Management estimated $423.2 million of capital spending over the next three years for identified repositioning and redevelopment projects. It cautioned that construction inflation, supply-chain constraints, permitting delays, and cost overruns could delay leasing or reduce project yields. The company had $227.1 million of tenant-improvement and construction commitments at quarter-end.
- Debt maturity exposure warrants attention: the contractual schedule lists $473.4 million in calendar 2024, principally reflecting the $400 million term loan due July 19, 2024, which has extension options. Separately, management reported $9.4 million of principal due within 12 months of June 30, 2023.
- Interest-rate swaps fixed the company’s variable-rate borrowings at quarter-end, limiting near-term sensitivity to SOFR movements; this does not remove refinancing or future financing-cost risk. Ratings on senior debt were Baa2 from Moody’s and BBB+ from S&P and Fitch.
- The portfolio is concentrated entirely in Southern California. Risks discussed include inflation and higher interest rates, market vacancy and rent growth, tenant defaults, refinancing conditions, natural disasters, environmental liabilities, and potential disruption affecting financial institutions. The company reported no legal proceedings expected to have a material adverse effect and no known material environmental liability.
- Unusual items included a $0.2 million impairment of an office lease right-of-use asset following early termination of a sublease, and $12.1 million of property-sale gains in the first half. A $300 million 5.0% senior-note issue due 2028 was completed in March 2023.
- After quarter-end, the company acquired three properties for $269.4 million and partially settled May 2023 forward equity agreements, issuing 5.4 million shares for $298.4 million of net proceeds. The board also declared a $0.38 per-share common dividend for the third quarter.
Management stated that disclosure controls were effective as of June 30, 2023, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether occupancy and leasing spreads remain strong as market vacancy, asking rents, and lease expirations evolve; distinguish total-portfolio occupancy from stabilized and same-property measures.
- The remaining forward-equity settlements and resulting share dilution, alongside the company’s use of its $1.25 billion ATM program.
- Refinancing or extension plans for the $400 million term loan due in July 2024, and the impact of interest costs on earnings and distributions.
- Actual costs, timing, lease-up, and returns for the redevelopment pipeline and the estimated $423.2 million of planned project spending.
- How much reported growth reflects acquisitions versus same-property performance, and how non-GAAP measures such as Core FFO, NOI, and Cash NOI reconcile to GAAP results. The filing cautions these measures are supplemental and not measures of liquidity.