Rexford Industrial Realty, Inc. — 2013 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2013. Rexford is a newly formed, self-managed REIT focused on industrial properties, primarily in Southern California infill markets. It completed its IPO and formation transactions on July 24, 2013, so the year’s financial results combine the post-IPO company with its predecessor; comparisons should be read with that structural change in mind.
At year-end, the consolidated portfolio comprised 65 properties and approximately 6.3 million rentable square feet. Rexford also held a 15% interest in a joint venture owning three properties totaling approximately 1.2 million square feet and managed 20 additional properties.
Financial and operating highlights
| Metric | 2013 / year-end | Prior comparable period or context |
|---|---|---|
| Revenue | Combined total revenue of $44.4 million; total portfolio rental revenue of $43.3 million | Total revenue was $33.0 million in 2012; total portfolio rental revenue rose 35.2%, largely reflecting acquisitions and portfolio changes. Same-property total revenue increased 10.3%. |
| Profit / loss | Combined net loss of $5.0 million, including $9.2 million loss from continuing operations and $4.2 million income from discontinued operations. Net loss attributable to common stockholders was $4.9 million. | Combined net loss was $9.0 million in 2012. The 2013 result included property-sale gains and a $4.0 million total-portfolio loss on extinguishment of debt. |
| FFO | $12.6 million combined for 2013, calculated from the reported post-IPO and predecessor periods | $4.6 million in 2012. FFO is a supplemental measure, not a measure of liquidity or cash available for dividends. |
| Cash flow | Combined operating cash flow was $13.5 million; investing cash outflow was $128.3 million; financing cash inflow was $80.3 million. | Operating cash flow was $1.1 million, investing outflow $23.8 million, and financing inflow $45.3 million in 2012. |
| Occupancy and rent | 89.7% occupied and 90.8% leased; annualized base rent was $49.1 million, or $8.65 per leased square foot. Weighted-average remaining lease term was 2.69 years. | Same-property property expenses were 23.6% of rental revenue, down from 25.4% in 2012. Renewed rents were flat on a weighted-average annual basis for 2013; Q4 renewal cash spreads were up 3.3%. |
| Debt and leverage | $192.5 million consolidated debt; debt to total market capitalization of 33.8%; weighted-average interest rate of 2.2%. Approximately 95.6% of outstanding long-term debt was exposed to short-term rate changes. | Predecessor debt was $295.4 million at December 31, 2012. Rexford repaid $303.3 million of predecessor indebtedness in connection with the IPO. |
| Liquidity | $9.0 million cash at year-end. The $200 million revolving facility had $81.4 million outstanding and $48.4 million available under the borrowing base; additional availability was reported after year-end following the addition of properties to the borrowing base. | The filing also gives an $84.1 million facility balance elsewhere; investors should verify this discrepancy against the audited debt disclosure. |
| Dividends | $0.21 per common share declared for the post-IPO period in 2013. | Future distributions are discretionary and subject to REIT requirements and credit-facility limits. |
The filing does not provide a clear comparable full-year common-stock margin measure. Full-year results are affected by acquisitions, dispositions, the IPO, and predecessor accounting; the company reports same-property operating comparisons separately.
Material changes versus the prior period
- Portfolio expansion drove much of the increase in total-portfolio rental revenue: Rexford and its predecessor acquired 12 properties during 2013, and the company reported 15 properties acquired during 2012 and 2013 combined for its comparison.
- Same-property rental revenue increased 9.6% and same-property total revenue increased 10.3% year over year, primarily reflecting higher average occupancy.
- IPO and private-placement proceeds funded debt repayment and growth. Debt declined from the predecessor’s $295.4 million year-end 2012 balance to $192.5 million at year-end 2013, while cash declined from $43.5 million to $9.0 million.
- General and administrative expense increased 89.4% for the total portfolio, reflecting equity compensation, public-company costs, additional staffing, tax services, bonuses, and legal fees.
- Leasing indicators improved late in the year, but market recovery was uneven, with San Diego occupancy lower than Los Angeles and Orange County.
Outlook, risks, contingencies, and unusual items
- Outlook: Management expects occupancy gains, leasing, acquisitions, and value-added repositioning to support growth, and believes rents may rise as markets recover. No numerical earnings, FFO, occupancy, or acquisition guidance is provided. Management noted plans to increase staffing from about 40 employees to 45–50 over the following 12–24 months, which could raise general and administrative costs.
- Lease rollover: Leases covering 26.2% of portfolio rentable area expire in 2014 and 18.2% in 2015; 10.4% of rentable area was available at year-end. Renewal, re-leasing costs, tenant improvements, and rent levels are key execution risks.
- Interest rates: Most consolidated long-term debt was floating-rate at year-end. A 50-basis-point LIBOR increase was estimated to raise annual interest expense by approximately $0.9 million. In February 2014, the company entered forward swaps to fix $60 million of term-loan exposure beginning in 2015.
- Concentration and insurance: Substantially all consolidated properties are in Southern California, an earthquake-prone market. The company did not carry earthquake insurance; a major event could cause uninsured property damage and lost cash flow.
- Litigation and formation accommodation: A putative class action by predecessor investors alleges, among other claims, unfair formation-transaction terms and misleading disclosures. The company disputes the claims, but says the outcome and any loss cannot be reasonably estimated. Separately, an accommodation returned or canceled certain management interests and redistributed consideration; 97.9% of pre-IPO investors, representing 98.5% of predecessor-fund capital commitments, participated.
- Debt maturities and covenants: The debt schedule shows approximately $124.3 million of principal payments due in 2016, subject to available extension options. The company reported compliance with loan covenants at year-end; the facility restricts distributions and borrowing capacity depends on covenant and borrowing-base tests.
- Other exposures: Risks include non-investment-grade tenants, regional and sector concentration, environmental and ADA compliance, acquisition and redevelopment execution, REIT qualification, and conflicts or restrictions arising from joint ventures and tax-protection agreements.
Important facts for investors to verify
- Reconcile the revolving-credit-facility balance: the filing cites both $81.4 million and $84.1 million outstanding at December 31, 2013, while reporting $48.4 million of borrowing-base availability.
- Review the audited statements and notes for the post-IPO/predecessor split, and distinguish reported combined results from same-property and acquisition pro forma figures.
- Assess the 2014–2015 lease expirations, vacant space, renewal spreads, and expected tenant-improvement and leasing-commission requirements.
- Confirm the 2016 maturity and extension terms, variable-rate exposure, post-year-end swaps, facility covenants, and actual borrowing availability.
- Monitor the formation-transaction litigation, related defense costs, and any material developments in the investor accommodation or its accounting and dilution effects.
- Evaluate the company’s uninsured earthquake exposure, property-condition and environmental risks, and tenant credit quality.