Rexford Industrial Realty, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Rexford is a REIT focused on owning, operating, acquiring and redeveloping industrial properties in Southern California infill markets. At quarter-end, its portfolio included 266 properties and approximately 33.0 million rentable square feet; it also managed 20 properties totaling approximately 1.0 million square feet. Dollar amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $104.4 million | $80.0 million | $204.1 million | $157.6 million |
| Net income | $26.0 million | $16.3 million | $56.7 million | $31.5 million |
| Net income attributable to common stockholders | $20.6 million | $11.4 million | $45.4 million | $22.2 million |
| Basic and diluted EPS | $0.15 | $0.10 | $0.34 | $0.19 |
| FFO attributable to common stockholders (non-GAAP) | $52.4 million | $38.8 million | $100.3 million | $76.3 million |
| Cash NOI (non-GAAP) | $71.5 million | $52.0 million | $140.6 million | $107.3 million |
| Cash from operating activities | — | $101.7 million | $71.2 million |
Q2 NOI was $79.7 million versus $60.9 million a year earlier; cash NOI margin was approximately 68.5% versus 65.0%. For the six months, NOI was $155.8 million versus $120.3 million, and cash NOI margin was approximately 68.9% versus 68.2%. These non-GAAP measures are not substitutes for GAAP results or cash available for distributions.
- Growth and earnings drivers: Q2 total revenue increased 30.5% year over year, while stabilized same-property rental income increased 9.2%. Six-month total revenue rose 29.5%, and stabilized same-property rental income rose 7.6%. Acquisition contributions materially increased total-portfolio revenue and expenses. Reported net income also benefited from property-sale gains: $2.8 million in Q2 and $13.6 million for the first half, with no such gains in the 2020 comparable periods.
- Occupancy and leasing: Stabilized same-property occupancy was 98.4% at June 30, versus 97.4% a year earlier. Across the consolidated portfolio, occupancy was 95.4%, or 98.2% excluding space in repositioning. First-half new-lease GAAP and cash spreads were 40.8% and 25.8%; renewal spreads were 39.2% and 26.7%. Retention was 76.6%.
- Balance sheet and debt: Total assets were $5.27 billion; cash and equivalents were $64.2 million. Gross debt was $1.226 billion ($1.219 billion net carrying value), with a 2.99% weighted-average effective rate and 6.2-year average maturity. Approximately 95% of debt was effectively fixed-rate; net debt was about 12.0% of total combined market capitalization. Debt maturities included $289.8 million in 2023 and $251.0 million in 2025. The company reported compliance with required debt covenants.
- Liquidity and capital spending: At June 30, the $700 million revolving facility had no borrowings and was fully available. After quarter-end, $62.0 million was drawn, leaving $638.0 million available as of the filing date. Six-month investing cash outflow was $449.2 million, mainly reflecting $412.8 million of real estate acquisitions and $49.5 million of capital expenditures; financing cash inflow was $234.2 million, including common-equity issuance. Cash, cash equivalents and restricted cash declined by $113.3 million to $64.2 million.
Material developments, outlook and risks
- During the first half, Rexford acquired 21 wholly owned properties for a stated gross purchase price of $420.4 million and sold three properties for $29.0 million gross proceeds, recording $13.6 million in gains. Subsequent to quarter-end, it acquired three more properties for $73.5 million. Management reported more than $650 million of acquisitions under contract or letter of intent at the filing date; completion was not assured.
- The company raised capital through ATM and forward equity sales. It issued 6.0 million common shares during the first half, with $309.4 million of net common-stock proceeds reported in cash flows. A May forward offering covered 9.0 million shares; 1.8 million had been settled by June 30, with 7.2 million shares remaining to settle at the company’s discretion before November 23, 2022. These financings increase the common share count.
- Management described Southern California infill industrial fundamentals as strong, citing limited supply, high occupancy, tenant demand and increasing rents. It expected positive renewal rates and leasing spreads for the remainder of 2021, but gave no formal quantitative earnings or FFO guidance. As of June 30, seven properties were under repositioning or redevelopment and three were in lease-up; a further 12 projects were in the pipeline. Estimated capital needed for identified projects over 2021–2023 was approximately $201 million, subject to change.
- COVID-19 rent deferrals remained a risk amid local eviction and rent-deferral orders. By June 30, $554,000 remained outstanding, of which $413,000 was due during the rest of 2021; the company reported collecting 98.7% of Q2 contractual billings by July 22 and 97.6% of deferred payments due by that date. No additional base-rent deferral agreements were entered into during 2021 through quarter-end.
- All properties are in Southern California, concentrating exposure to regional economic, regulatory and natural-disaster risks. Other stated risks include tenant defaults or nonrenewals, acquisition and redevelopment execution, construction delays and costs, interest rates, refinancing, REIT qualification and maintaining investment-grade ratings. There were no material changes to the 2020 Form 10-K risk factors, and no legal proceedings expected to have a material adverse effect were reported.
- On July 12, Rexford announced redemption of all 3.6 million Series A preferred shares on August 16 for approximately $90.7 million, including accrued dividends; it expected a $3.3 million noncash charge reducing income available to common stockholders. The board declared a $0.24 common dividend for the next quarter. Disclosure controls were deemed effective, with no material control changes reported.
Important facts for investors to verify
- How much reported earnings growth reflects acquisitions and property-sale gains versus recurring same-property performance; review FFO, NOI and cash NOI reconciliations and limitations.
- Whether high leasing spreads, occupancy and rent collection persist, and how scheduled lease expirations and the 76.6% retention rate affect future revenue.
- Execution, cost and timing of the approximately $201 million repositioning/redevelopment program and the company’s large acquisition pipeline.
- Post-quarter revolver usage, remaining liquidity, debt maturities and covenant headroom, as well as the financing and share-dilution effects of outstanding forward equity sales.
- Completion and cash-flow impact of the Series A preferred redemption, and any ongoing effects of COVID-19 rent deferrals or local restrictions.