Rexford Industrial Realty, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Rexford is an industrial REIT focused on Southern California infill markets. At quarter-end, its portfolio comprised 181 properties and approximately 22.1 million rentable square feet; it also managed 19 properties totaling approximately 1.0 million square feet.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $60.4 million | $48.5 million | +24.4% |
| Net income | $10.7 million | $15.1 million | Down $4.4 million |
| Net income attributable to common stockholders | $8.0 million; $0.08 per diluted share | $12.2 million; $0.15 per diluted share | Down 34.8% in aggregate |
| FFO attributable to common stockholders (non-GAAP) | $29.4 million | $21.4 million | +37.2% |
| Net cash from operating activities | $36.2 million | $25.2 million | + $11.0 million |
- Rental income increased 23.1% to $59.6 million. Same-property rental income rose 6.0%; same-property occupancy at quarter-end was 96.8%, versus 95.4% a year earlier.
- Property-level NOI was $45.8 million, up 25.5%; NOI as a share of rental income was approximately 76.8%, versus 75.3%. Cash NOI, a non-GAAP measure, increased to $42.0 million from $33.4 million.
- Reported net income fell primarily because Q1 2018 included a $10.0 million gain on property sales; there were no property dispositions in Q1 2019. Total expenses rose 14.3%, including higher depreciation and interest expense.
- Investing cash outflow was $165.4 million, mainly for acquisitions, capital expenditures and acquisition deposits. Financing cash inflow was $225.2 million, principally reflecting $244.7 million net proceeds from common-stock issuance.
- Cash and cash equivalents were $276.6 million at March 31, compared with $180.6 million at year-end. Notes payable had $761.1 million principal outstanding ($757.5 million carrying value). The company reported a 3.487% weighted-average debt rate, 5.3-year average maturity, and 73% of debt effectively fixed-rate. Net debt to total combined market capitalization was approximately 10.9%.
- No revolver borrowings were outstanding at March 31, leaving $350 million available then. The filing separately reports $35 million outstanding and $315 million available as of the filing date. The company was in compliance with quarterly debt covenants.
Material changes and operating activity
- Q1 acquisitions: five properties totaling approximately 0.8 million square feet for a gross contractual purchase price of $146.0 million. Common shares outstanding increased from 96.8 million at year-end to 104.0 million at quarter-end following the ATM issuance.
- New leases achieved reported GAAP and cash leasing spreads of 36.5% and 26.4%; renewals achieved 22.0% and 13.5%, respectively. Retention was 69.7%. These spreads exclude leases without comparable data.
- Consolidated portfolio occupancy, including repositioning space, was 94.6%; stabilized occupancy excluding such space was 97.8%. Nine properties were under repositioning or development and two were in lease-up.
- The company adopted ASC 842 lease accounting on January 1, 2019. Comparative results were reclassified for presentation; adoption resulted in a $0.2 million reduction to cumulative distributions in excess of earnings.
Outlook, risks and contingencies
- Management described Southern California infill market conditions as strong, citing limited supply, low vacancy and tenant demand. It expected positive market trends through the remainder of 2019, continued rental growth in several markets, positive renewal spreads for the rest of 2019, and anticipated approximately $51.9 million of capital to complete repositioning and redevelopment projects through 2020. No specific full-year earnings or revenue guidance is provided in the filing.
- After quarter-end, the company reported 12 additional acquisitions totaling approximately 1.5 million square feet and $265.5 million in purchase price; year-to-date through the filing date, it had acquired 17 properties for $411.5 million. Approximately $200.3 million of acquisitions were under contract or letter of intent at filing date.
- Key risks include tenant defaults or non-renewals, vacancy and rent changes, acquisition and redevelopment execution, interest rates and refinancing, the Southern California market concentration, natural disasters, environmental exposure, insurance adequacy and maintaining REIT status and investment-grade ratings.
- Tenant improvement and construction commitments were approximately $11.8 million. An environmental remediation liability of $0.8 million for one property was matched by an indemnification asset; management did not expect a material impact but noted indemnification and future environmental liabilities are not assured. No legal proceeding was identified as likely to have a material adverse effect.
- Subsequent events included issuance of preferred partnership units with an aggregate $27.0 million liquidation preference to acquire a property, further property acquisitions, and a declared common dividend of $0.185 per share.
Important facts for investors to verify
- Whether same-property rent growth, occupancy and leasing spreads persist, particularly as substantial lease expirations occur in 2020 and 2021.
- Acquisition pricing, integration and lease-up results, and whether planned redevelopment spending stays within budget and schedule.
- Funding and dilution implications of continued ATM sales, subsequent acquisitions and revolver borrowings; reconcile revolver balances at quarter-end versus filing date.
- Debt maturities, covenant headroom, variable-rate exposure and the effect of changes in interest rates on cash flows.
- Cash available for dividends after capital needs, and the assumptions supporting non-GAAP FFO, NOI and Cash NOI measures.